The great train takeover | FT Big Deal

The fiercest takeover battle of 2021 tookplace in a sector that hadn’t seen a major deal in over 20 years: the railroad industry. And just like in the board game, Monopoly,it immediately became clear why owning more railroads is such an attractive prospect. The saga began in March when Canadian Pacificagreed to buy smaller rival Kansas City Southern for $28.9bn including debt. The transaction would allow Canadian Pacificto form a 20,000-mile network that stretched across North America to create the first US-Mexico-Canadarailroad. But Canadian National, a larger rival to thetwo smallest players of the so-called class.

One rail operators in the region, had otherplans. In April, it gatecrashed Canadian Pacific’sbid with a $34bn offer to buy Kansas City Southern. By May, it had convinced the board of theUS company to back its offer. But all was not well for Canadian Nationalbehind the scenes. Trouble emerged soon after when one of itsmajor shareholders, the UK activist investor Christopher Hohn of TCI, warned it to dropits plans or face a shareholder revolt. Hohn, who also happened to be a big shareholderin Canadian Pacific, believed US regulators at the Surface Transportation Board wouldtake issue with a voting trust that Canadian.

National planned to use for its deal. Voting trusts are vehicles that allow a buyerof an asset to immediately pay the shareholders of the target company, even while regulatorsinvestigate the merger proposal. During this process the companies seekingto merge continue to be operated independently. The STB had already told Canadian Nationalthat they would take a harder line on their voting trust plans, using a stricter criteriathan what they planned to apply to Canadian Pacific. Hohn said if Canadian National pressed aheadand failed, he would seek the immediate resignation of its chief executive.

By the end of August, the STB rejected CanadianNational’s voting trust request, spooking its shareholders. By then Canadian Pacific had already returnedto the table with a fresh $31bn takeover offer. By mid-September, Kansas City Southern agreedto a deal with Canadian Pacific as it prevailed in the takeover battle. And in October, Canadian National said chiefexecutive Jean-Jacques Ruest, who failed to clinch the deal, would leave the company withina few months. The saga showed that unlike in Monopoly, hewho has the most cash doesn’t always win.The great train takeover | FT Big Deal

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