UPDATE: Aug. 19, 2021: Kansas City Southern said in a press release it had adjourned its shareholders' meeting until Sept. 3, 2021.

UPDATE: Aug. 13, 2021: Kansas City Southern on Thursday announced its board of directors had reviewed the "unsolicited bid" from Canadian Pacific, and deemed it was not superior to Canadian National's bid.

"The KCS Board reaffirms its recommendation to KCS shareholders to vote in favor of the pro-competitive, end-to-end merger with CN," the railroad said in a press release.

KCS also said it would decide on Aug. 17 whether its shareholder vote would continue as planned, or be delayed.

The Surface Transportation Board announced Tuesday it would reveal its decision on whether the CN-KCS voting trust passes muster no later than Aug. 31, 2021. If the STB rejects a voting trust for the deal, a shareholder vote to approve it could be moot.

"The KCS Board of Directors has determined, with the concurrence of CN, that if the STB has not released a public decision by August 17, 2021, at 6:00 p.m., Central Time, the Special Meeting will be adjourned to give all shareholders and the Board time to receive and consider the STB decision," the railroad said.

Dive Brief:

• Canadian Pacific submitted a new bid to take over Kansas City Southern on Aug. 10, according to a letter sent to the KCS board of directors, and published by CP.
• The bid is a cash and stock transaction valued at $31 billion, according to the railroad. It represents a $2 billion higher enterprise value than the original merger agreement in March, but remains below the bid from Canadian National, which was valued at $33.6 billion when the deal was announced in May.
• KCS shareholders are scheduled to vote on whether the railroad can establish a voting trust for the merger with CN on Aug. 19. The latest bid is an explicit attempt to derail that vote, so KCS can once again pursue a combination with CP.

Dive Insight:

CP was never shy about its intentions to derail the KCS-CN deal, but the latest bid significantly ramps up the pressure on shareholders — and not just the board of directors — to decide which Canadian railroad will succeed.

Behind the drama is a scheduled vote on Aug. 19 that, if approved, would create a voting trust that would mostly lock in KCS shareholders' view of the CN-KCS deal by delegating the decision to a trustee.

Over the past months, CP had engaged in a pressure campaign to sway KCS shareholders against the measure.

As an example, on Aug. 2 it filed a preliminary proxy statement seeking votes against the CN deal. In response, KCS said it recommended shareholders vote "FOR" on Aug. 19, noting CP had yet to submit a better alternative.

"In May, CP decided not to take advantage of its five-business-day match right, per the terms of its initial merger contract, to compete with CN's superior proposal. Since that time, CP has consistently criticized our combination with CN," KCS said in a statement. "CP claims in its latest filing that it is 'ready to re-engage with KCS,' but it did not make any new proposal in its most recent filing. Nor did it commit to making one in the future, going on to say, 'there can be no assurances that Canadian Pacific will make an offer or proposal to KCS.'"

In its letter to KCS' board of directors, CP said it had not made a counteroffer to avoid entering a bidding war, but the upcoming vote led CP to believe it was "the right time to re-engage."

"The regulatory uncertainty of the proposed CN merger has placed KCS stockholders in the unfortunate position of having to vote on the proposed CN merger and, as a consequence of approving such proposal, eliminate KCS's ability to consider superior offers, all the while not having any level of certainty with respect to whether the STB will approve CN's use of a voting trust," CP wrote in its letter.

Now, the Aug. 19 vote takes on an even bigger significance: KCS shareholders will decide whether to lock in the deal with CN, or to leave the door open for CP's competing deal.

Next week will be a critical one for Canadian railroads. But for shippers, the bigger decision will take place after the shareholders vote, when the decision passes to regulators investigating the deal's effect on competition. And, considering Biden's executive order on consolidation, there is no guarantee any deal will succeed.