(Montreal) The Canadian National (CN) is back in the sale of Kansas City Southern (KCS) to its rival, the Canadian Pacific Railway (CP). The Montreal rail carrier is asking regulators to have a KCS line excluded from the transaction and sold to it.
Updated yesterday at 3:39 p.m.
CN is asking the Surface Transportation Board (STB) to make CP’s purchase of KCS conditional on the divestiture of the Springfield line, which connects Kansas City, Missouri, to the municipalities of Springfield and East St. Louis, in Illinois.
CN alleges that CP and KCS have no intention of investing in the Springfield line and would favor an existing parallel line. The Montreal company promises to invest 250 million US in the line, she wrote in a notice of intent filed Wednesday evening with the STB. It does not specify over how many years this amount would be invested. According to her, the promised investments would preserve competition in the transport market in the Midwest.
CP responds that CN’s assertions are “misleading”. “We are not going to reduce service on any line, including the one mentioned,” the company said in a statement. We will maintain the existing service and we will not redirect traffic to other lines, contrary to what CN claims. The company says it anticipates an increase in traffic of around 30% on the route in question.
The clash between the Canadian rail transport giants rekindles a fierce battle between the two rivals over the future of KCS. After an initial offer in March, CP saw CN go one better with an offer that KCS deemed superior to its own. This was dropped in September, however, when the US STB denied CN the use of a voting trust for its KCS bid, saying it would be bad for competition. KCS shareholders finally approved CP’s US$31 billion offer in December.
Benoit Poirier, of Desjardins Capital Markets, believes that the sale of assets could be a logical option insofar as the STB pays great attention to increasing competition. The financial analyst, however, believes that at least four other railway companies could be interested in a possible transfer.
CP says the assets CN is eyeing are an “important” part of the new merged entity’s strategic plan. After the transaction, CP wants to unlock nearly US$1 billion in synergies over three years by competing with local rail carriers and the trucking industry. Mr. Poirier believes, however, that the sale of the Springfield line would not change the fundamental aspects of the CP acquisition project.
On the Toronto Stock Exchange in the late afternoon, CP stock gained $1.69, or 1.78%, to $96.43. CN stock, meanwhile, was down $0.59, or 0.38%, at $153.46.