After CN's setback, CP once again opens door to Kansas City Southern takeover

Canadian Pacific Railway Ltd. has approached the Kansas City Southern board to reaffirm its interest in taking over the railway after U.S. regulators rejected a key part of Canadian National Railway Co.'s bid.

"It is the perfect combination," CP Rail CEO Keith Creel told a conference call with investors Wednesday, a day after the U.S. Surface Transportation Board rejected CN's use of a voting trust as part of its bid for KCS.

CP Rail has maintained that its $31-billion offer, while worth less than CN's $33.6-billion proposal, has less regulatory risk.

"For value to be realized it has to be achievable. It can't be illusory. We have deal certainty, this value is achievable," Creel said.

CN said it was disappointed by the U.S. regulator's decision, but that it remains confident its offer to buy the U.S. railway is in the public interest.

The trust would have allowed KCS to remain independent while a full and lengthy regulatory review of the proposed takeover went forward, while also allowing shareholders to be paid without having to wait for a final decision on the deal.

However, the U.S. regulator said that while the trust would mean CN wasn't in direct control of KCS operations, it would still be a beneficial owner and share in profits.

The Montreal-based railway said it is evaluating its options in light of the decision.

The KCS board, which had supported CN's bid, said Wednesday it was also disappointed in the decision and that it was working with CN to evaluate options.

KCS said it plans to adjourn a special meeting that had been scheduled for Friday for shareholders to vote on the CN proposal.

The U.S. railway said it would evaluate CP's proposal in accordance with the terms of KCS' merger agreement with CN and respond in due course.

CN's proposed acquisition would be the first takeover of a major U.S. railway in two decades and the first to test stricter criteria that looks at whether a merger would enhance competition.

CP Rail has approval for a voting trust structure, and, because of its smaller size and lack of overlap with KCS, it has secured a waiver so that its bid would be judged on the older merger criteria.