MONTREAL, QUEBEC, CANADA — Canadian National Railway Co. (CN) and Kansas City Southern (KCS) have moved a step closer in their merger process, filing certain documents with the Surface Transportation Board (STB) that will allow the STB to review the voting trust in connection with the definitive merger agreement between CN and KCS. In mid-May, CN agreed to acquire KCS in a transaction valued at $33.6 billion.
The newly filed documents include written opinions of financial advisers, debt commitment letters and information related to KCS’s pre-existing capital allocation policy. The documents also included a “verified statement” from Michael W. Upchurch, chief financial officer of KCS.
“The (STB) should expeditiously approve the CN voting trust,” Upchurch said. “It is the same as the already approved CP trust. It has the same trustee. The merger agreement provides KCS with financial flexibility and freedom to undertake its capital and maintenance plans. Further, over 1,400 stakeholders have supported the CN-KCS combination so far.”
In his statement, Upchurch stressed the financial strength of KCS and its capital investment plans during the trust period.
“KCS compares very favorably to other Class I railroads in almost every important financial measure, including revenue growth, operating ratio, EBITDA, EPS growth, free cash flow yields, debt leverage ratio, liquidity, interest coverage ratio, and funds from operations to debt ratio,” he said. “Today, KCS generates substantially more cash flow than is required for our annual investment needs. We have more than sufficient access to capital to fund our three-year capital investment plan.”
He also pointed out the ways the potential merger will provide KCS with continued flexibility to undertake its capital investment plans.
“The merger agreement provides KCS with financial flexibility and freedom to undertake its capital and maintenance plans,” Upchurch said. “The merger agreement is designed to preserve KCS’s pre-existing capital allocation policies during the trust period. It is also designed to ensure that during the trust period KCS will continue to have the freedom and the resources to pursue its existing and robust capital expenditure program without interference from CN. During the trust period, KCS will have substantial cash, liquidity and access to capital markets not only to meet our planned investment requirements consistent with the plan approved by our board of directors previous to any merger agreement with either CP or CN, but also the ability to far exceed that plan if it is necessary to do so.”
According to a June 8 STB filing, the CN-KCS voting trust has been designed to ensure KCS’s independence and freedom of action during the trust period, and to give CN and KCS the opportunity during the trust period to demonstrate the merits of the CN-KCS combination, which will enhance competition; strengthen the North American rail network; and provide better service and more choice for CN and KCS customers.
The STB’s official public comment period will be open until June 28.
The filing made with the STB, as well as additional information about CN’s pro-competitive combination with KCS, is available at www.ConnectedContinent.com.