Kansas City Southern takes new look at $27bn offer from Canadian Pacific

Rail updates

Sign up to myFT Daily Digest to be the first to know about Rail news.

The board of the Kansas City Southern railroad is reconsidering a $27bn offer from Canadian Pacific, despite an agreement to sell the company to a rival, after a US regulator rejected how the earlier deal was structured.

The board of the railroad, which is headquartered in Kansas City, Missouri and runs between that city and Mexico, said on Saturday that Canadian Pacific’s offer “could reasonably be expected to lead to” a “superior” offer than the one Canadian National made in May to buy the railroad for $30bn.

Kansas City Southern said it would open its books to Canadian Pacific, but that the move would not necessarily lead to a deal.

Both Canadian railroads are pursuing the rare opportunity to extend their reach into the US by snapping up one of only seven large railroads in North America. Canadian Pacific has previously said that its competitor’s larger offer nods to the greater regulatory scrutiny the deal faces.

If Canadian National acquires Kansas City Southern, the railroad would be the third largest on the continent. A tie-up with Canadian Pacific would still be the smallest of the six remaining big rail operators.

Last week the US Surface Transportation Board, which regulates railroads, ruled that a “voting trust” proposed by Canadian National could not be used. The trust would have allowed shareholders of Kansas City Southern to receive payment before the merger was approved.

Both Canadian National and Kansas City Southern said they were “disappointed” by the regulator’s decision. Canadian National added that the deal “would enhance competition” and provide “new and faster routes”.

The tie-up comes at a time when the global supply chain is straining. Shippers are paying high rates to rail, truck, ship and air carriers to ferry freight to meet consumer demand.

Canadian Pacific chief executive Keith Creel said a deal between his railroad and Kansas City Southern was “the only truly end-to-end Class 1 merger that preserves and enhances competition. It is the perfect combination . . . for the rail industry and for commerce in North America”.

Canadian Pacific previously offered to pay $275 per share in stock and cash for the railroad, but has raised that to $300 per share.

Kansas City Southern closed at $291.63 on Friday.