KC Southern Shareholders Should Vote for CN Offer, ISS Says

A Canadian National Railway locomotive. (Christinne Muschi/Bloomberg News)

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Canadian National Railway Co.’s $30 billion takeover bid for Kansas City Southern received a boost Aug. 6 when a prominent shareholder advisory firm recommended that shareholders support the deal.

Institutional Shareholder Services Inc. said Kansas City Southern shareholders should vote for the deal on Aug. 18 despite the risk that it may be blocked by regulators.

“The offer is compelling. The issue is instead one of certainty — namely, whether the voting trust, which will be used by the parties to consummate the deal in advance of final approval, will be accepted by the Surface Transportation Board,” ISS said in its report.

Voting in favor of the deal would “lock in” a termination fee that Kansas City Southern would get from Canadian National if the deal ultimately fails, ISS noted. Shareholders “would also advance the deal one step closer to completion,” the firm said.

Patrick J. Ottensmeyer, CEO of Kansas City Southern, said the company is “pleased” with the recommendation of ISS, which “validates our belief that CN is the ideal partner for KCS,” according to a statement Aug. 7.

Kansas City Southern accepted CN’s offer in May, scrapping a $25 billion deal with Canadian Pacific Railway Ltd. after that carrier said it didn’t intend to get into a bidding war.

CP has argued that the takeover from its larger Canadian rival will face regulatory hurdles that its own proposal didn’t because a deal with CN would give shipping customers fewer options to transport goods from ports on the Gulf of Mexico to Canada.

CP has also lobbied against the proposed voting trust that would allow Kansas City Southern shareholders to be paid prior to the completion of the regulatory review. Under the proposed plan, Kansas City Southern would continue to operate independently within the trust until the review is completed.

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