KC Southern accepts buyout from Canadian National Railway

A Canadian National Rail locomotive moves through the rail yard in Dartmouth, Nova Scotia, on Thursday, March 29, 2018. Canadian National sweetened its offer to buy Kansas City Southern railroad Thursday, May 13, 2021, and derailed rival Canadian Pacific’s bid for the railroad that handles traffic in the United States and Mexico. (Andrew Vaughan/The Canadian Press via AP)

A quiet Mclean Rail Yard is pictured in North Vancouver, British Columbia, Wednesday, Nov. 20, 2019, as Canadian National rail workers strike outside the gates. Canadian National sweetened its offer to buy Kansas City Southern railroad Thursday, May 13, 2021, and derailed rival Canadian Pacific’s bid for the railroad that handles traffic in the United States and Mexico. (Jonathan Hayward/The Canadian Press via AP)

A man walks into Central Station next to Canadian National headquarters in Montreal, Tuesday, Nov. 26, 2019. Canadian National sweetened its offer to buy Kansas City Southern railroad Thursday, May 13, 2021, and derailed rival Canadian Pacific’s bid for the railroad that handles traffic in the United States and Mexico. (Graham Hughes/The Canadian Press via AP)

A Canadian National rail worker stands on an idle locomotive as protesters opposed to the Trans Mountain pipeline expansion block rail lines, in Burnaby, British Columbia, Friday, Nov. 27, 2020. Canadian National sweetened its offer to buy Kansas City Southern railroad Thursday, May 13, 2021, and derailed rival Canadian Pacific’s bid for the railroad that handles traffic in the United States and Mexico. (Darryl Dyck/The Canadian Press via AP)

A Canadian National locomotive passes by freight containers at the Canadian National Taschereau yard in Montreal, Saturday, Nov. 28, 2009. Canadian National sweetened its offer to buy Kansas City Southern railroad Thursday, May 13, 2021, and derailed rival Canadian Pacific’s bid for the railroad that handles traffic in the United States and Mexico. (Graham Hughes/The Canadian Press via AP)

NEW YORK (AP) — Kansas City Southern has abandoned its agreement to be acquired by Canadian Pacific, choosing instead a competing bid from Canadian National Railway with a bigger price tag, but also greater regulatory risks.

The decision Friday comes one day after Canadian Pacific said that it wasn't budging from its initial $25 billion buyout agreement made in March, even after Kansas City Southern said that a richer $33.6 billion bid from Canadian National appeared to be superior.

Canadian Pacific has consistently argued that a tie-up between Kansas City and Canadian National would have trouble getting approved by antitrust regulators and as recently as Thursday, said that it would not boost its original offer. Canadian Pacific has asserted that their combination with Kansas City Southern is most likely to get a green light from regulators.

Both Kansas City Southern and Canadian National operate rails that run north and south through the center of the country, which Canadian Pacific believes would create antitrust issues.

While Kansas City Southern is the smallest of the major railroads operating in the U.S., it controls those key routes that connect the U.S. and Mexico, making it a very desirable prize and a potential antitrust hazard for a competing railroad that wants to own it.

U.S. regulators haven’t approved any major railroad mergers since the 1990s, and officials have said that any deal involving one of the handful of Class 1 railroads, a group that includes Kansas City Southern, must enhance competition and serve the public interest.

This week, a major Canadian National shareholder urged the railroad to abandon its bid for Kansas City because of regulatory issues, including a procedural setback this week.

London-based investment firm TCI Fund, which owns nearly 3% of Canadian National, cited uncertainty about whether U.S. regulators would approve the acquisition under a tough set of rules for railroad mergers that haven’t been tested since they were written 20 years ago.

“There is no way the CN board can have any confidence in how these new rules will be interpreted because they have never been used before,” wrote Chris Hohn, TCI founder and portfolio manager, and Ben Walker, a partner at the firm.

The Surface Transportation Board has said it would consider whether any deal would destabilize the industry and induce more mergers. The board adopted tough rules for major railroad mergers after service problems developed after railroad mergers in the 1990s.

Kansas City Southern said for each share of its common stock, shareholders will get $200 in cash and 1.129 shares of Canadian National common stock. Kansas City Southern shares were up slightly Friday morning, to $295.62 per share.

In a letter to regulators Friday, Canadian Pacific said that it intended to proceed with its application for its approval to control Kansas City Southern based on its agreement from March.