CN (TSX: CNR, NYSE: CNI) and Kansas City Southern (NYSE: KSU)
(“KCS”) today announced that the Hon. William Clyburn, Jr., a
former Commissioner and Vice-Chairman of the U.S. Surface
Transportation Board (“STB”) has written an op-ed, which was
published by Railway Age. “In the op-ed, Clyburn states he believes
the CN voting trust addresses “unlawful control” and the “public
interest” under the new rules, and that as such, the voting trust
should be approved. The full text of the op-ed can be found below:
CN Voting Trust
Clears Tests Under STB New Merger Rules: Should Be Approved
Written by William
Clyburn, Jr.
Having been one of
the three Surface Transportation Board (STB) Members who voted on
the 2001 Major Merger Rules, it seems clear to me that the CN
voting trust satisfies the new rules requirements addressing
“unlawful control” and the “public interest” when deciding to
approve or reject a voting trust. As such, it should be approved so
that the Board and the public may move forward to consider the
merits of the proposed transaction.
In adopting the 2001
new merger rules with respect to voting trusts, the STB voting
trust regulation focused on the impending control application and
did not create a “new test” to pre-judge the “public interest”
merits of the entire proposed transaction before approving a voting
trust. We were looking at the public interest factors that we
believed were relevant to voting trust approval, not approval of
the merger itself.
In reviewing voting
trusts, we were focused on two factors: (1) would the trust
insulate the target company from unlawful control by the acquiring
company during the regulatory review process; and (2) would the
acquiring company and target company remain financially sound so as
to not jeopardize either railroad in the event the transaction was
eventually denied. The new rules were designed to require
applicants to formally meet these tests before the Board would
approve the use of a voting trust.
Prior to adoption of
the Major Merger Rules, parties proposing use of a voting trust
were free to use it without Board approval. As a result, unless
there was a controversy, the Board itself rarely reviewed voting
trusts. As part of the 2001 proceeding, we wanted more authority
over and transparency into the voting trust process. In that
proceeding, we adopted rules that now require (1) applicants of a
major transaction to file a voting trust for approval; (2) the
Board to hold a “brief” period of time for the public to comment on
the use of a voting trust; and (3) the Board to issue a decision
after the comment period to either accept or reject the trust. As
part of that formal review process, the STB examines the trust to
ensure there is no unlawful control and to determine whether the
voting trust is in the public interest regarding the financial
integrity of the applicant carriers.
When considering the
public interest of a voting trust, and as explained in the merger
rules themselves, we were concerned about the financial health of
the applicants and the divestiture of the target railroad if the
STB did not ultimately approve the transaction. Specifically, we
wrote then that the Board is “responsible for ascertaining whether
a proposed transaction would undermine the financial integrity of
the applicant carriers.”As such, we adopted a public interest
standard designed to focus on the financial fitness of the merging
parties, which was one of the five public interest factors in the
statute, and the most important factor in reviewing voting
trusts.
The proposed CN/KCS
trust should be approved. It incorporates the same elements that
have already been approved for the now moot CP/KCS voting trust and
proposes to use the same trustee. In approving the CP/KCS trust,
the Board has already determined that the trust structure does not
cause unlawful, premature control. The Board should reach the same
conclusion with respect to the CN/KCS trust. Similarly, in the
CP/KCS decision, the STB found that KCS will be financially fit
while in trust, and the STB reached the same conclusion with
respect to CP’s financial fitness.
Based upon the recent
motion from CN regarding their proposed voting trust, it seems
clear that CN is one of the most financially-sound railroads, and
that it can more than cover any debt it must take on to acquire
KCS. CN has agreed to forgo share repurchases until its debt ratio
returns to pre-deal levels. CN, like CP, should be found
financially fit.
Likewise, in
approving the CP/KCS trust, the STB inherently found that there was
no concern about divestiture of KCS in the event that the STB did
not approve the transaction. Such a finding becomes even more
poignant with respect to the CN/KCS trust because CP has been clear
that it remains interested in acquiring KCS. On May 21, 2021, CP
issued a press release stating that “[w]ere KCS presented with the
question of how to proceed following a decision by the Board not to
approve CN's proposed use of a voting trust, CP anticipates being
available to engage with KCS to enter into another agreement to
acquire KCS.” And it has again said so in its recent motion for a
declaratory order filed at the STB.
The CN-KCS
transaction appears to strengthen competition by adding a strong
competitor in the North-South lanes in the industrial center of the
country, and opens markets with new single-line hauls, creating
more efficient movements among Canada, the United States, and
Mexico. CN has committed to divest the only overlapping line
between the CN and KCS systems, a short 70 mile line between New
Orleans and Baton Rouge, and to maintain open gateways. The CN-KCS
combination is therefore a classic end-to-end merger that preserves
existing route options, enhances competition with new, single-line
routing options for shippers, and creates new rail-to-rail
competition.
Based upon my
first-hand knowledge of the internal conversations within the Board
from when I voted on the 2001 new merger rules, it is my opinion
that the CN voting trust more than clears the two tests we
established for such trusts in 2001 and should be considered on a
level playing field with CP’s approved trust. The CN trust should
be approved so that the Board and the public may move forward to
consider the merits of the transaction.
Mr. Clyburn is the
Principal of Clyburn Consulting LLC and was the fourth Member to
serve on the United States Surface Transportation Board (“Board”)
since its inception in 1996. He joined the Board in 1998 and served
until the end of 2001, including as Vice Chairman. Prior to joining
the Board, Mr. Clyburn served as the Commerce Counsel to former
U.S. Senator Chuck Robb of Virginia and as Staff Counsel to the
United States, Senate Committee on Commerce, Science and
Transportation from 1993 to1995 and has been a consultant to Kansas
City Southern. He also served as senior counsel to U.S. Senator
Zell Miller. From 1992 to 1993, he served as a Judicial Attorney
for the Hon. Rodney A. Peeples of South Carolina’s Second and Ninth
Circuit Courts.
For more information on CN’s pro-competitive
combination with KCS, please visit www.ConnectedContinent.com.
About CNCN is a world-class
transportation leader and trade-enabler. Essential to the economy,
to the customers, and to the communities it serves, CN safely
transports more than 300 million tons of natural resources,
manufactured products, and finished goods throughout North America
every year. As the only railroad connecting Canada’s Eastern and
Western coasts with the U.S. South through a 19,500-mile rail
network, CN and its affiliates have been contributing to community
prosperity and sustainable trade since 1919. CN is committed to
programs supporting social responsibility and environmental
stewardship.
About Kansas City
SouthernHeadquartered in Kansas City, Mo., Kansas City
Southern (KCS) (NYSE: KSU) is a transportation holding company that
has railroad investments in the U.S., Mexico and Panama. Its
primary U.S. holding is The Kansas City Southern Railway Company,
serving the central and south central U.S. Its international
holdings include Kansas City Southern de Mexico, S.A. de C.V.,
serving northeastern and central Mexico and the port cities of
Lázaro Cárdenas, Tampico and Veracruz, and a 50 percent interest in
Panama Canal Railway Company, providing ocean-to-ocean freight and
passenger service along the Panama Canal. KCS' North American rail
holdings and strategic alliances with other North American rail
partners are primary components of a unique railway system, linking
the commercial and industrial centers of the U.S., Mexico and
Canada. More information about KCS can be found at
www.kcsouthern.com
Forward Looking
StatementsCertain statements included in this news release
constitute “forward-looking statements” within the meaning of the
United States Private Securities Litigation Reform Act of 1995 and
under Canadian securities laws, including statements based on
management’s assessment and assumptions and publicly available
information with respect to KCS, regarding the proposed transaction
between CN and KCS, the expected benefits of the proposed
transaction and future opportunities for the combined company. By
their nature, forward-looking statements involve risks,
uncertainties and assumptions. CN cautions that its assumptions may
not materialize and that current economic conditions render such
assumptions, although reasonable at the time they were made,
subject to greater uncertainty. Forward-looking statements may be
identified by the use of terminology such as “believes,” “expects,”
“anticipates,” “assumes,” “outlook,” “plans,” “targets,” or other
similar words.
Forward-looking statements are not guarantees of
future performance and involve risks, uncertainties and other
factors which may cause actual results, performance or achievements
of CN, or the combined company, to be materially different from the
outlook or any future results, performance or achievements implied
by such statements. Accordingly, readers are advised not to place
undue reliance on forward-looking statements. Important risk
factors that could affect the forward-looking statements in this
news release include, but are not limited to: the outcome of the
proposed transaction between CN and KCS; the parties’ ability to
consummate the proposed transaction; the conditions to the
completion of the proposed transaction; that the regulatory
approvals required for the proposed transaction may not be obtained
on the terms expected or on the anticipated schedule or at all;
CN’s indebtedness, including the substantial indebtedness CN
expects to incur and assume in connection with the proposed
transaction and the need to generate sufficient cash flows to
service and repay such debt; CN’s ability to meet expectations
regarding the timing, completion and accounting and tax treatments
of the proposed transaction; the possibility that CN may be unable
to achieve expected synergies and operating efficiencies within the
expected time-frames or at all and to successfully integrate KCS’
operations with those of CN; that such integration may be more
difficult, time-consuming or costly than expected; that operating
costs, customer loss and business disruption (including, without
limitation, difficulties in maintaining relationships with
employees, customers or suppliers) may be greater than expected
following the proposed transaction or the public announcement of
the proposed transaction; the retention of certain key employees of
KCS may be difficult; the duration and effects of the COVID-19
pandemic, general economic and business conditions, particularly in
the context of the COVID-19 pandemic; industry competition;
inflation, currency and interest rate fluctuations; changes in fuel
prices; legislative and/or regulatory developments; compliance with
environmental laws and regulations; actions by regulators; the
adverse impact of any termination or revocation by the Mexican
government of KCS de México, S.A. de C.V.’s Concession; increases
in maintenance and operating costs; security threats; reliance on
technology and related cybersecurity risk; trade restrictions or
other changes to international trade arrangements; transportation
of hazardous materials; various events which could disrupt
operations, including illegal blockades of rail networks, and
natural events such as severe weather, droughts, fires, floods and
earthquakes; climate change; labor negotiations and disruptions;
environmental claims; uncertainties of investigations, proceedings
or other types of claims and litigation; risks and liabilities
arising from derailments; timing and completion of capital
programs; and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the United
States. Reference should also be made to Management’s Discussion
and Analysis in CN’s annual and interim reports, Annual Information
Form and Form 40-F, filed with Canadian and U.S. securities
regulators and available on CN’s website, for a description of
major risk factors relating to CN. Additional risks that may affect
KCS’ results of operations appear in Part I, Item 1A “Risks Related
to KCS’s Operations and Business” of KCS’ Annual Report on Form
10-K for the year ended December 31, 2020, and in KCS’ other
filings with the U.S. Securities and Exchange Commission
(“SEC”).
Forward-looking statements reflect information
as of the date on which they are made. CN assumes no obligation to
update or revise forward-looking statements to reflect future
events, changes in circumstances, or changes in beliefs, unless
required by applicable securities laws. In the event CN does update
any forward-looking statement, no inference should be made that CN
will make additional updates with respect to that statement,
related matters, or any other forward-looking statement.
No Offer or SolicitationThis
news release does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offer of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended.
Additional Information and Where to Find
ItIn connection with the proposed transaction, CN will
file with the SEC a registration statement on Form F-4 to register
the shares to be issued in connection with the proposed
transaction. The registration statement will include a preliminary
proxy statement of KCS which, when finalized, will be sent to the
stockholders of KCS seeking their approval of the merger-related
proposals. This news release is not a substitute for the proxy
statement or registration statement or other document CN and/or KCS
may file with the SEC or applicable securities regulators in Canada
in connection with the proposed transaction.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ
THE PROXY STATEMENT(S), REGISTRATION STATEMENT(S), TENDER OFFER
STATEMENT, PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH
THE SEC OR APPLICABLE SECURITIES REGULATORS IN CANADA CAREFULLY IN
THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT CN, KCS AND THE PROPOSED
TRANSACTIONS. Any definitive proxy statement(s), registration
statement or prospectus(es) and other documents filed by CN and KCS
(if and when available) will be mailed to stockholders of CN and/or
KCS, as applicable. Investors and security holders will be able to
obtain copies of these documents (if and when available) and other
documents filed with the SEC and applicable securities regulators
in Canada by CN free of charge through at www.sec.gov and
www.sedar.com. Copies of the documents filed by CN (if and when
available) will also be made available free of charge by accessing
CN’s website at www.CN.ca. Copies of the documents filed by KCS (if
and when available) will also be made available free of charge at
www.investors.kcsouthern.com, upon written request delivered to KCS
at 427 West 12th Street, Kansas City, Missouri 64105, Attention:
Corporate Secretary, or by calling KCS’s Corporate Secretary’s
Office by telephone at 1-888-800-3690 or by email at
corpsec@kcsouthern.com.
ParticipantsThis news release
is neither a solicitation of a proxy nor a substitute for any proxy
statement or other filings that may be made with the SEC and
applicable securities regulators in Canada. Nonetheless, CN, KCS,
and certain of their directors and executive officers and other
members of management and employees may be deemed to be
participants in the solicitation of proxies in respect of the
proposed transactions. Information about CN’s executive officers
and directors is available in its 2021 Management Information
Circular, dated March 9, 2021, as well as its 2020 Annual Report on
Form 40-F filed with the SEC on February 1, 2021, in each case
available on its website at www.CN.ca/investors/ and at www.sec.gov
and www.sedar.com. Information about KCS’ directors and executive
officers may be found on its website at www.kcsouthern.com and in
its 2020 Annual Report on Form 10-K filed with the SEC on January
29, 2021, available at www.investors.kcsouthern.com and
www.sec.gov. Additional information regarding the interests of such
potential participants will be included in one or more registration
statements, proxy statements, tender offer statements or other
documents filed with the SEC and applicable securities regulators
in Canada if and when they become available. These documents (if
and when available) may be obtained free of charge from the SEC’s
website at www.sec.gov and from www.sedar.com, as applicable.
Contacts:
Media: CNCanadaMathieu
GaudreaultCN Media Relations & Public Affairs(514)
249-4735Mathieu.Gaudreault@cn.caLongview Communications &
Public AffairsMartin Cej (403) 512-5730
mcej@longviewcomms.caUnited StatesBrunswick
GroupJonathan Doorley / Rebecca Kral(917) 459-0419 / (917)
818-9002jdoorley@brunswickgroup.comrkral@brunswickgroup.comMedia:
KCSC. Doniele CarlsonKCS Corporate Communications &
Community Affairs(816) 983-1372dcarlson@kcsouthern.comJoele Frank,
Wilkinson Brimmer KatcherTim Lynch / Ed Trissel(212) 355-4449 |
Investment Community: CNPaul
ButcherVice-PresidentInvestor Relations(514)
399-0052investor.relations@cn.caInvestment Community:
KCSAshley ThorneVice PresidentInvestor Relations(816)
983-1530athorne@kcsouthern.comMacKenzie Partners, Inc.Dan Burch /
Laurie Connell(212) 929-5748 / (212) 378-7071 |
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