Canadian National beats Canadian Pacific with $33.6B Kansas City bid

U.S. railway operator Kansas City Southernsaid on Thursday that it had accepted Canadian National Railway's $33.6 billion US acquisition offer, upending a $29 billion deal with its competitor Canadian Pacific Railway.

The development, first reported by Reuters, gives CP five business days to make a new offer for Kansas City Southern. Were CP to table a new offer, a bidding war could ensue.

CP had previously announced a deal to buy Kansas City Southern on March 21, before CN said it had submitted a higher bid on April 20.

The headline price in CN's cash-and-stock bid remains $325 per share as originally announced, though the company offered more of its shares to compensate for a decline in its stock price.

• CN steps up with $33B offer for Kansas City Southern, besting CP's $25B bid

CN has offered to cover the $700 million break-up fee Kansas City Southern will owe CP. It will also pay Kansas City Southern $1 billion if the U.S. Surface Transportation Boardrejects a voting trust structure it has put forward to complete the deal.

"We believe that Canadian Pacific's negotiated agreement with Kansas City is the only true end-to-end Class I combination that is in the best interests of North American shippers and communities," a CP spokeswoman said.

CP and larger rival CN are in a race to take over the U.S. railroad operator, which would create the first direct railway linking Canada, the United States, and Mexico.

Either of them acquiring Kansas City Southern would create a North American railway spanning the United States, Mexico and Canada, as supply chains recover from COVID-19 pandemic-led disruptions.

The acquisition interest in Kansas City Southern also follows the ratification of the U.S.-Mexico-Canada Agreement last year that removed the threat of trade tensions, which had escalated under former U.S. President Donald Trump.