Kansas City Southern takeover vote delayed after bid gutted

In this Nov. 5, 2004, file photo, the logo of Kansas City Southern is down on a restored 1954 Kansas City Southern passenger locomotive at Union Station in Kansas City, Mo. Kansas City Southern railroad is trying to keep its $33.6 billion merger with Canadian National on track by rejecting a competing $31 billion bid from rival Canadian Pacific earlier this week. Kansas City Southern said Thursday, Aug. 12, 2021, that its board unanimously decided to continue backing Canadian National's higher offer. .(Norman Ng/The Kansas City Star via AP, File)

In this May 13, 2021, file photo, a man walks into Central Station next to Canadian National headquarters in Montreal. Canadian National’s $33.6 billion deal to acquire Kansas City Southern railroad is in jeopardy after federal regulators rejected a key part of the plan Tuesday, Aug. 31, 2021 and opened the door for a competing $31 billion offer from Canadian Pacific railroad. (Graham Hughes/The Canadian Press via AP, File)

In this May 23, 2012, file photo, surveyors work next to Canadian Pacific Rail trains which are parked on the train tracks in Toronto. A planned shareholder vote on Canadian National's $33.6 billion offer has been delayed, Wednesday, Sept. 1, 2021, after regulators rejected a key part of the plan, so now Kansas City Southern can consider all of its options, including a competing $31 billion offer from Canadian Pacific Railway. (Nathan Denette/The Canadian Press via AP, File)

OMAHA, Neb. (AP) — A planned shareholder vote on Canadian National's $33.6 billion offer has been delayed after regulators rejected a key part of the plan, so now Kansas City Southern railroad can consider all of its options, including a competing $31 billion offer from Canadian Pacific Railway.

While both Kansas City Southern and Canadian National expressed disappointment in Tuesday's ruling from the Surface Transportation Board, Canadian Pacific officials expressed optimism Wednesday that they will be able to consummate the deal they first announced back in March after months of back and forth. KCS shareholders had been set to vote on the CN deal on Friday.

“It’s time to get on with this and creating the significant value for the shareholder, for the customer and for the employees,” Canadian Pacific CEO Keith Creel said.

The federal Surface Transportation Board said Tuesday that it wasn't in the public interest to allow CN to use a voting trust to acquire Kansas City Southern and hold the railroad throughout the board's lengthy review process. That decision leaves the CN deal in limbo because using a voting trust that would have allowed Kansas City Southern shareholders to get paid up front was a key part of the deal.

The board seemed to agree with concerns Canadian Pacific raised about the competitive impact across the central United States. KCS and CN operate parallel rail lines connecting the Midwest to the Gulf Coast, so allowing those two to combine would eliminate a shipping option for many companies.

Canadian National is now facing pressure from a major shareholder to abandon the Kansas City Southern deal. The London-based investment firm TCI Fund said in a letter Tuesday that CN should get a new CEO and refocus on improving its operations.

Canadian Pacific's offer to buy Kansas City Southern already received approval to use a voting trust, so that deal has a much clearer path forward if the KCS board agrees to accept that lower offer. There are also fewer competitive concerns about a CP-KCS merger because there is little overlap between the two railroads’ networks. Even after the deal the combined railroad would be the smallest of the major North American railroads.

"We’ve got two like-minded companies that care about our customers, we care about our employees, we care about the service that we offer and the value that we create. You put that together, it creates a pretty powerful marriage," Creel said.

If a deal does move forward, this will be the first merger involving two major railroads since the 1990s. The Surface Transportation Board has generally said that any deal involving one of the nation’s six largest railroads needs to enhance competition and serve the public interest to get approved. The board has also said it would consider whether any deal would destabilize the industry and prompt additional mergers.

For more than two decades the railroad industry has been stable, with two railroads in the Western United States — BNSF and Union Pacific — two in the Eastern United States — CSX and Norfolk Southern — and the two Canadian railroads that serve part of the United States.