Letter outlines six principal arguments for
why the CN/KCS transaction be reviewed under 2001 merger
rules
CN/KCS transaction plainly flunks the
"end-to-end" test for applying the pre-2001 rules
CALGARY, AB, May 1, 2021 /CNW/ - Canadian Pacific Railway
Limited ("CP") (TSX: CP) (NYSE: CP) yesterday filed a formal
objection with the Surface Transportation Board ("STB") stating
that Canadian National ("CN") does not qualify for a waiver of the
STB's rules for major transactions with respect to CN's unsolicited
proposal for Kansas City Southern ("KCS").
In its letter, CP explains that the CN/KCS transaction does not
satisfy any of the criteria that the STB relied upon in finding
that the waiver should apply to a CP/KCS transaction, which the STB
granted to CP on April 23,
2021.
The submission outlined the following reasons why a waiver
should be rejected for CN's proposal:
1. CN is a much
larger railroad than CP.
A combined CN/KCS would greatly
expand the size of the fifth largest U.S. Class 1 railroad, vastly
increasing the gap between CN/KCS and the new smallest Class 1,
which would be CP. A combined CN/KCS would be more than three-times
the size of CP, whereas the proposed CP/KCS would still be 13
percent smaller than CN (as measured by U.S. operating revenue).
(Figure 1)
2.
A potential CN/KCS combination heavily overlaps across much
of KCS' U.S. system, unlike a CP/KCS combination.
A CN/KCS transaction plainly
flunks the "end-to-end" test, notwithstanding CN's occasional and
misleading assertions that such a transaction would be end-to-end.
As explained in CP's April 27, 2021
letter filed with the STB, economic analysis of Waybill Sample data
identifies a significant number of origin-destination corridors
where the number of independent rail competitors will be reduced
from 2-to-1 or 3-to-2 by the CN/KCS transaction. The verified
statement of economist W. Robert
Majure was filed with CP's submission and explains the
screening analysis that confirmed these impacts and also confirmed
that CP/KCS is in fact end-to-end.
3. The potential
downstream impacts of a CN transaction are material.
Whereas CP/KCS preserves the basic
six-carrier structure of the North American rail network (two in
the East, two in the West, and two in Canada with routes to the Gulf), the CN/KCS
transaction would destabilize that structure. To borrow CN's own
words, unlike CP/KCS, the CN/KCS transaction would be a
"significant restructuring of the rail industry," and the Board
needs the new rules to address the "likely strategic
responses."
4. CN's
acquisition premium should cause the STB concern.
The extraordinary premium price CN
is offering to try to disrupt CP's proposed combination with KCS
ought to concern the STB, as it will not only extinguish the new
competition that a CP/KCS combination would bring to CN but also
require CN to find ways to recoup those extra costs. All of
these consequences would arise immediately upon KCS being placed
into trust as part of a CN acquisition, and the "public interest"
standard of the Board's 2001 rules should be applied.
5. CN's proposal
to acquire KCS would kill the CP/KCS combination and all the
procompetitive effects that go with it.
The STB stated in its April 23, 2021 filing that it was applying the
pre-2001 rules to the proposed CP/KCS transaction because that
transaction "fall[s] neatly into the Board's rationale for adopting
the waiver in the first instance." The decision emphasized
the "CP and KCS networks would appear to result in the fewest
overlapping routes when compared to a merger between KCS and any
other Class 1 carrier". Unlike the "end-to-end" CP/KCS transaction
– after which the combined company would still be the smallest
Class 1 railroad – the CN/KCS proposal raises all of the concerns
that the 2001 rules were adopted to address.
6. CN has already
committed itself to the new merger rules.
Despite CN stating that its merger
application would proceed under the current (2001) rules for major
mergers, CN has also implied that its embrace of the 2001 rules was
only "voluntar[y]", perhaps suggesting that the STB would lack
authority to bind CN to compliance with those rules. That is
another reason to make it official that the waiver does not apply
and the new rules will govern.
A copy of CP's full filing is available here.
For more information on the CP/KCS transaction and the benefits
it is expected to bring to the full range of stakeholders,
visit FutureForFreight.com.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This news release includes certain forward looking statements
and forward looking information (collectively, FLI). 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 pending share split of CP's issued and
outstanding common shares; 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 webpage is
expressly qualified in its entirety by these cautionary
statements.
ABOUT CANADIAN PACIFIC
Canadian Pacific (TSX: CP) (NYSE: CP) 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.sec.gov and www.investors.kcsouthern.com. 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.
View original content to download
multimedia:http://www.prnewswire.com/news-releases/canadian-pacific-files-formal-objection-to-canadian-national-using-merger-waiver-that-stb-granted-to-cpkcs-transaction-301281577.html
SOURCE Canadian Pacific