WASHINGTON, DC, US — The Surface Transportation Board (STB) on Aug. 31 issued a unanimous decision rejecting the use of a voting trust agreement in connection with the proposed transaction between Canadian National Railway (CN) and Kansas City Southern Railway (KCS). The decision marks a significant setback in the months-long saga that has seen KCS consider acquisition proposals from both CN and Canadian Pacific (CP).

“Here, the board finds that applicants have not demonstrated that their use of a voting trust would have public benefits, and further finds that there are public interest risks to competition and divestiture associated with the use of a voting trust in the context of the impending control application,” the STB noted in its decision. “Accordingly, the board finds that the use of a voting trust would not be consistent with the public interest and will deny applicants’ motion for voting trust approval.”

Following the STB’s announcement, CN issued a response noting its disappointment in the decision, noting that it now plans to evaluate “the options available to us in light of the STB’s decision.”

“We remain confident that our pro-competitive, end-to-end combination is in the public interest and that it would offer unparalleled opportunities and benefits for customers, employees, the environment and the North American economy,” CN said. “The combined company would create the premier railway for the 21st century and establish seamless single-line service from Canada, through the United States and into Mexico.

“Since the proposed combination with KCS was announced, we have been encouraged by the overwhelming support from both companies’ customers, employees, local communities and shareholders. We continue to believe that the combination of CN and KCS would enhance competition, expand North American trade and power economic prosperity, provide new and faster routes, increase supply chain efficiency and deliver other benefits to the public good.”

KCS also expressed its disappointment in the decision.

“KCS intends to adjourn the special meeting of stockholders for KCS stockholders to vote on the previously announced definitive merger agreement with CN and other proposals,” KCS said. “The special meeting is currently scheduled to take place at 9 a.m., Central Time, on Sept. 3, 2021.”

CP, meanwhile, called the STB decision “the right one for rail shippers, the freight rail industry and the North American economy.”

“The STB decision clearly shows that the CN-KCS merger proposal is illusory and not achievable,” said Keith Creel, president and chief executive officer of CP. “Knowing this, we believe the Aug. 10 CP offer to combine with KCS, which recognizes the premium value of KCS while providing regulatory certainty, ought to be deemed a superior proposal. Today, we have notified the KCS board of directors that our Aug. 10 offer still stands to bring this once-in-a lifetime partnership together.”

CP’s proposal represents an enterprise value of approximately $31 billion, while CN’s proposal implies a total enterprise value of $33.6 billion.