Canadian Pacific Transaction Offers Greater
Certainty for KCS Stockholders, Creates More Rail Competition for
Shippers and is Better for North
America
Remaining the Smallest Class 1 Railroad, a
CP/KCS Combination is the Only Deal that Appropriately Manages
Regulatory Risk and Creates Significant Benefits for Customers and
Stakeholders
Over 400 Customers and Stakeholders Across the
Transportation Supply Chain Have Filed Letters in Support of a
CP/KCS Combination
CALGARY, AB, April 20, 2021 /PRNewswire/ - Canadian
Pacific Railway Limited (TSX: CP) (NYSE: CP) today issued the
following statement regarding Canadian National's unsolicited offer
to acquire Kansas City Southern ("KCS"):
Canadian National's ("CN") proposal is illusory and inferior
because it creates adverse competitive impacts and raises other
serious public interest concerns. CN's proposal increases
regulatory and anti-trust risk for KCS shareholders and decreases
benefits for customers, employees and other stakeholders.
Canadian National's proposal is massively complex and likely
to fail.
The Canadian National proposal would create the third largest
Class 1 railroad and destabilize the competitive balance in the
North American rail industry.
The only combination involving KCS that is clearly in the public
interest is the one that Canadian Pacific has proposed, which has
already garnered support from over 400 shippers and other
stakeholders. While remaining the smallest of the six U.S. Class 1
railroads by revenue, a combination between CP and KCS creates
stronger single-line competition against existing Class 1
routes.
Canadian National Proposal Would Reduce Competition and
Negatively Impact Shippers
- Between the upper Midwest and Gulf Coast – in corridors like
Twin Cities to New Orleans – the CN proposal would reduce the
number of independent routing options from four to three.
- CN's proposal would eliminate head-to-head competition for
large numbers of shippers at numerous locations across KCS's
system. The STB has previously recognized that CN and KCS "compete
aggressively for traffic."
- CN's suggestion that competition is limited to a handful of
shippers between Baton Rouge and
New Orleans is false. CN and KCS's
parallel lines between those points serve large numbers of shippers
and their proximity has prompted build-in/build-out competition in
the past.
- In addition, both CN and KCS serve large numbers of shippers in
western Iowa and eastern
Nebraska, at Jackson, Mississippi, East St. Louis, Illinois, Springfield, Illinois, and both reach the port
of Mobile, Alabama.
Canadian National Has History of Over Promising and
Underdelivering
The Canadian National management team has significantly
underperformed over a decade and has a track record of
underdelivering against its own projections. Specifically, Canadian
National has been the worst performing Class 1 railroad over the
last 10 years by total shareholder return. This calls into question
the financial projections they have made regarding a CN/KCS
combination and puts significant value at risk for KCS
shareholders.
Importantly, Canadian National has consistently delivered
inferior safety and accident performance. In contrast, Canadian
Pacific has been North America's
safest Class 1 railroad for 15 consecutive years based on Federal
Railroad Administration-reportable train accident frequency.
Canadian Pacific and its management team led by CEO Keith Creel have consistently outperformed the
industry with a track record of exceeding expectations. In
addition, Keith Creel, a native of
Alabama, brings deep knowledge of
the US rail networks and extensive operating background, essential
to making a combination with KCS successful.
A CP/KCS Combination Ensures Greater Competition and Offers
More Options for Customers
A combination of CP and KCS enhances competition, creating new
and stronger competitive options against existing UP, BNSF and CN
single-line routes, as well as trucks. One prime example is it
would benefit the U.S. Upper Midwest grain-growing regions of the
Dakotas, Minnesota, and
Iowa, where CP/KCS will inject new
competition for shippers now beholden to UP and BNSF to reach the
Gulf and other end markets. The Canadian National proposal would
not bring these benefits.
The CP/KCS combined network's new single-line offerings would
deliver dramatically expanded market reach for customers served by
CP and KCS, provide new competitive transportation service options,
and support North American economic growth. Importantly, no
customer will experience a reduction in independent railroad
choices as a result of the transaction.
The transaction is also expected to create jobs across the
combined network, and efficiency and service improvements are
expected to achieve meaningful environmental benefits.
In short, over 400 customers and stakeholders are supporting the
CP/KCS combination because it delivers enhanced competition, more
competitive options and superior long-term value for shareholders
and stakeholders.
Background on the CP/KCS Definitive Agreement
On March 21, 2021, Canadian
Pacific and Kansas City Southern announced a definitive agreement
under which common shareholders of KCS will receive 0.489 of a CP
share and $90 in cash for each KCS
common share held, following the closing into a voting trust.
Preferred shareholders will receive $37.50 in cash for each KCS preferred share held.
The STB review is expected to be completed by the middle of 2022.
Upon obtaining control approval, the two companies will be
integrated, unlocking the benefits of the combination.
Canadian Pacific's Board of Directors continues to recommend the
transaction with Kansas City Southern to its stockholders.
CP and KCS Website for More Information for All
Stakeholders
Additional information on the transaction and the benefits it is
expected to bring to the full range of stakeholders is available
online at FutureForFreight.com.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This news release includes certain forward looking statements
and forward looking information (collectively, FLI) to provide CP
and KCS shareholders and potential investors with information about
CP, KCS and their respective subsidiaries and affiliates, including
each company's management's respective assessment of CP, KCS and
their respective subsidiaries' future plans and operations, which
FLI may not be appropriate for other purposes. FLI is typically
identified by words such as "anticipate", "expect", "project",
"estimate", "forecast", "plan", "intend", "target", "believe",
"likely" and similar words suggesting future outcomes or statements
regarding an outlook. All statements other than statements of
historical fact may be FLI.
Although we believe that the FLI is reasonable based on the
information available today and processes used to prepare it, such
statements are not guarantees of future performance and you are
cautioned against placing undue reliance on FLI. By its nature, FLI
involves a variety of assumptions, which are based upon factors
that may be difficult to predict and that may involve known and
unknown risks and uncertainties and other factors which may cause
actual results, levels of activity and achievements to differ
materially from those expressed or implied by these FLI, including,
but not limited to, the following: the timing and completion of the
transaction, including receipt of regulatory and shareholder
approvals and the satisfaction of other conditions precedent;
interloper risk; the realization of anticipated benefits and
synergies of the transaction and the timing thereof; the success of
integration plans; the focus of management time and attention on
the transaction and other disruptions arising from the transaction;
estimated future dividends; financial strength and flexibility;
debt and equity market conditions, including the ability to access
capital markets on favourable terms or at all; cost of debt and
equity capital; the previously announced proposed share split of
CP's issued and outstanding common shares and whether it will
receive the requisite shareholder and regulatory approvals;
potential changes in the CP share price which may negatively impact
the value of consideration offered to KCS shareholders; the ability
of management of CP, its subsidiaries and affiliates to execute key
priorities, including those in connection with the transaction;
general Canadian, U.S., Mexican and global social, economic,
political, credit and business conditions; risks associated with
agricultural production such as weather conditions and insect
populations; the availability and price of energy commodities; the
effects of competition and pricing pressures, including competition
from other rail carriers, trucking companies and maritime shippers
in Canada, the U.S. and
Mexico; industry capacity; shifts
in market demand; changes in commodity prices; uncertainty
surrounding timing and volumes of commodities being shipped;
inflation; geopolitical instability; changes in laws, regulations
and government policies, including regulation of rates; changes in
taxes and tax rates; potential increases in maintenance and
operating costs; changes in fuel prices; disruption in fuel
supplies; uncertainties of investigations, proceedings or other
types of claims and litigation; compliance with environmental
regulations; labour disputes; changes in labour costs and labour
difficulties; risks and liabilities arising from derailments;
transportation of dangerous goods; timing of completion of capital
and maintenance projects; currency and interest rate fluctuations;
exchange rates; effects of changes in market conditions and
discount rates on the financial position of pension plans and
investments; trade restrictions or other changes to international
trade arrangements; the effects of current and future multinational
trade agreements on the level of trade among Canada, the U.S. and Mexico; climate change and the market and
regulatory responses to climate change; anticipated in-service
dates; success of hedging activities; operational performance and
reliability; customer, shareholder, regulatory and other
stakeholder approvals and support; regulatory and legislative
decisions and actions; the adverse impact of any termination or
revocation by the Mexican government of Kansas City Southern de
Mexico, S.A. de C.V.'s Concession;
public opinion; various events that could disrupt operations,
including severe weather, such as droughts, floods, avalanches and
earthquakes, and cybersecurity attacks, as well as security threats
and governmental response to them, and technological changes; acts
of terrorism, war or other acts of violence or crime or risk of
such activities; insurance coverage limitations; material adverse
changes in economic and industry conditions, including the
availability of short and long-term financing; and the pandemic
created by the outbreak of COVID-19 and resulting effects on
economic conditions, the demand environment for logistics
requirements and energy prices, restrictions imposed by public
health authorities or governments, fiscal and monetary policy
responses by governments and financial institutions, and
disruptions to global supply chains.
We caution that the foregoing list of factors is not exhaustive
and is made as of the date hereof. Additional information about
these and other assumptions, risks and uncertainties can be found
in reports and filings by CP and KCS with Canadian and U.S.
securities regulators, including any proxy statement, prospectus,
material change report, management information circular or
registration statement to be filed in connection with the
transaction. Due to the interdependencies and correlation of these
factors, as well as other factors, the impact of any one
assumption, risk or uncertainty on FLI cannot be determined with
certainty.
Except to the extent required by law, we assume no obligation to
publicly update or revise any FLI, whether as a result of new
information, future events or otherwise. All FLI in this news
release is expressly qualified in its entirety by these cautionary
statements.
ABOUT CANADIAN PACIFIC
Canadian Pacific is a transcontinental railway in Canada and the
United States with direct links to major ports on the west
and east coasts. CP provides North American customers a competitive
rail service with access to key markets in every corner of the
globe. CP is growing with its customers, offering a suite of
freight transportation services, logistics solutions and supply
chain expertise. Visit www.cpr.ca to see the rail advantages of CP.
CP-IR
ADDITIONAL INFORMATION ABOUT THE TRANSACTION AND WHERE TO FIND
IT
CP will file with the U.S. Securities and Exchange Commission
(SEC) a registration statement on Form F-4, which will include a
proxy statement of KCS that also constitutes a prospectus of CP,
and any other documents in connection with the transaction. The
definitive proxy statement/prospectus will be sent to the
shareholders of KCS. CP will also file a management proxy circular
in connection with the transaction with applicable securities
regulators in Canada and the
management proxy circular will be sent to CP shareholders.
INVESTORS AND SHAREHOLDERS OF KCS AND CP ARE URGED TO READ THE
PROXY STATEMENT/PROSPECTUS AND MANAGEMENT PROXY CIRCULAR, AS
APPLICABLE, AND ANY OTHER DOCUMENTS FILED OR TO BE FILED WITH THE
SEC OR APPLICABLE SECURITIES REGULATORS IN CANADA IN CONNECTION WITH THE TRANSACTION WHEN
THEY BECOME AVAILABLE, AS THEY WILL CONTAIN IMPORTANT INFORMATION
ABOUT KCS, CP, THE TRANSACTION AND RELATED MATTERS. The
registration statement and proxy statement/prospectus and other
documents filed by CP and KCS with the SEC, when filed, will be
available free of charge at the SEC's website at www.sec.gov. In
addition, investors and shareholders will be able to obtain free
copies of the registration statement, proxy statement/prospectus,
management proxy circular and other documents which will be filed
with the SEC and applicable securities regulators in Canada by CP online at investor.cpr.ca and
www.sedar.com, upon written request delivered to CP at 7550 Ogden
Dale Road S.E., Calgary, Alberta,
T2C 4X9, Attention: Office of the Corporate Secretary, or by
calling CP at 1-403-319-7000, and will be able to obtain free
copies of the proxy statement/prospectus and other documents filed
with the SEC by KCS online at www.investors.kcsouthern.com, upon
written request delivered to KCS at 427 West 12th Street,
Kansas City, Missouri 64105,
Attention: Corporate Secretary, or by calling KCS's Corporate
Secretary's Office by telephone at 1-888-800-3690 or by email at
corpsec@kcsouthern.com.
You may also read and copy any reports, statements and other
information filed by KCS and CP with the SEC at the SEC public
reference room at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at
1-800-732-0330 or visit the SEC's website for further information
on its public reference room. This communication shall not
constitute an offer to sell or the solicitation of an offer to buy
any securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be
unlawful prior to appropriate registration or qualification under
the securities laws of such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the U.S. Securities Act of 1933, as
amended.
PARTICIPANTS IN THE SOLICITATION OF PROXIES
This communication is not a solicitation of proxies in
connection with the transaction. However, under SEC rules, CP, KCS,
and certain of their respective directors and executive officers
may be deemed to be participants in the solicitation of proxies in
connection with the transaction. Information about CP's directors
and executive officers may be found in its 2021 Management Proxy
Circular, dated March 10, 2021, as
well as its 2020 Annual Report on Form 10-K filed with the SEC and
applicable securities regulators in Canada on February 18,
2021, available on its website at investor.cpr.ca and at
www.sedar.com and www.sec.gov. Information about KCS's directors
and executive officers may be found on its website at
www.kcsouthern.com and in its 2020 Annual Report on Form 10-K filed
with the SEC on January 29, 2021,
available at www.investors.kcsouthern.com and
www.sec.gov. These documents can be obtained free of charge
from the sources indicated above. Additional information regarding
the interests of such potential participants in the solicitation of
proxies in connection with the transaction will be included in the
proxy statement/prospectus and management proxy circular and other
relevant materials filed with the SEC and applicable securities
regulators in Canada when they
become available.
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SOURCE Canadian Pacific