The high-stakes battle to buy Kansas City Southern railroad is heating up again, with Canadian Pacific pitching another acquisition bid after the Surface Transportation Board denied Canadian National Railway’s proposal.

The STB, which regulates the U.S. rail industry, rejected CN’s proposal to acquire Kansas City Southern Tuesday.

“The board has determined that the proposed voting trust is not consistent with the public interest standard under the board’s merger regulations,” the STB said in a statement. Companies form a voting trust to combine shareholders voting power when briefly transferring their shares to the trustee. The STB also disagreed with CN and KCS that the merger would not cause competitive concerns.

“With respect to competitive risks, the board finds that the use of a voting trust, in the context of this impending control application, could result in a dampened incentive for the merging parties to compete vigorously during the pendency of the voting trust,” STB stated.

KCS said it was disappointed with STB’s rejection of the voting trust with CN, and confirmed it has received an unsolicited proposal from CP.

That proposal is the same one made Aug. 10. Stockholders would receive “2.884 of CP common stock shares and $90 in cash for each share of KCS common stock held,” according to CP. Preferred KCS stockholders would get $37.50 in cash for each share of KCS preferred stock they hold.

"The STB decision clearly shows that the CN-KCS merger proposal is illusory and not achievable," said Keith Creel, CP President and CEO. "Knowing this, we believe the August 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.”

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In a release, CN said it is still "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." 

On May 21, KCS said it was moving forward with the $33.6 billion proposal. On May 17, the STB decided to use stricter rules of scrutiny to evaluate CN’s merger proposal than CP’s. The Justice Department had filed comments with the STB saying CN’s proposal raises “sufficient competition concerns.”

"As the first major rail merger in over two decades, this proposed transaction presents important and novel competition issues that have the potential to significantly reshape the industry," DOJ said.

Both CN and CP have been trying to merge with KCS over the last several months. Both see this as a unique trade opportunity to connect the first railroad from Canada to Mexico.

A KCS stockholders meeting has been scheduled for Friday morning to consider next steps. CP has given KCS until Sep. 12 to consider its offer.

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