U.S. Regulators Reject Canadian National Railway’s Voting Trust to Buy Kansas City Southern Railroad

On Tuesday, August 31, 2021, the U.S. rail regulator rejected a voting trust structure that would have allowed the Canadian National Railway Co. (CN) to proceed with its $29 billion proposed acquisition of U.S.-peer Kansas City Southern Railroad (KCS). The regulator said that the decision was based on antitrust concerns and is a major setback to the deal that would have created the first direct railway linking Canada, the United States, and Mexico.

The voting trust would temporarily own Kansas City Southern without Canadian National exerting control. It would have allowed Kansas City Southern shareholders to receive and keep the $325 per share in cash and stock that Canadian National was offering, even if the combination was subsequently rejected by the regulator, the U.S. Surface Transportation Board (STB).

“The Board finds that applicants have not demonstrated that their use of a voting trust would be consistent with the public interest,” the STB said in its ruling. It added that it was not making a final determination on whether the competitive issues that the deal faced could be resolved. The STB has therefore left the door open for the companies to seek full review of their proposed merger. Regulatory experts said the process would be uncertain and could last more than a year.

Canadian National said late on Tuesday it was disappointed with the regulator’s decision and evaluating options available. Kansas City Southern did not immediately respond to a request for comment on its next steps. On Wednesday morning the other suitor, the Canadian Pacific Railway (CP) who has STB approval, said they were still interested in pursuing their purchase of the KCS.