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Canadian National Railway Co CNR

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Kansas City Southern Deems CN’s Merger Proposal to Be Superior; Board Intends to Accept Deal

Matthew Young, CFA Equity Analyst

Analyst Note

| Matthew Young, CFA |

Kansas City Southern has deemed Canadian National’s previously announced merger offer to be "superior," and its board intends to terminate the Canadian Pacific agreement and accept CN’s offer. CN increased the number of shares that KCS shareholders will receive in order to keep its total consideration at $325 per share; CN’s share price has declined slightly since the original proposal. KCS shareholders will receive $200 in cash and 1.129 CN shares (previously 1.059 shares) for each KCS share held. Under the revised proposal, CN will also reimburse KCS for the $700 million termination fee it must pay Canadian Pacific. Overall, we are not surprised that KCS accepted CN’s proposal, given the much higher remuneration, though we originally saw a slight chance that KCS' board could hesitate due to potentially higher hurdles in securing Surface Transportation Board approval under a CN marriage (including for a voting trust). In a volley of press releases, CP has argued extensively that a CN deal will reduce competition due to overlapping routes in the United States. That remains to be seen.

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Company Profile

Business Description

Canadian National's railway spans Canada from coast to coast and extends through Chicago to the Gulf of Mexico. In 2019, CN delivered almost 6 million carloads over its 19,600 miles of track. CN generated roughly CAD 14 billion in total revenue by hauling intermodal containers (25% of consolidated revenue), petroleum and chemicals (21%), grain and fertilizers (16%), forest products (12%), metals and mining (11%), automotive shipments (6%), and coal (4%). Other items constitute the remaining revenue.

935 de La Gauchetiere Street West
Montreal, QC, H3B 2M9, Canada
T +1 514 399-7091
Sector Industrials
Industry Railroads
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 24,577

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