UK hedge fund manager Chris Hohn has asked Canada National to give up $ 34bn in search of a US railway partner in Kansas City South.
Hohn’s hedge fund TCI, the fifth largest shareholder in CN with 3% of $ 2.3bn, told the Montreal company on Tuesday to remove the key factor in wanting to take over or leave the deal immediately.
TCI has disrupted CN’s plan to establish a voting booth, in which KCS participants are paid before receiving approval from the Surface Transportation Board, which oversees major railways.
Voting trustees are vehicles that allow the buyer to pay early for the advertisers, while the regulators investigate the request. During this time the companies that want to merge continue to be run independently.
In March, a Canadian Pacific Pacific counterpart agreed pay $ 29bn cash and stock purchase of KCS, a contract that also includes the use of a voting trust. TCI is the largest shareholder in CP, with an 8.4% stake worth $ 4.3bn, according to S&P Capital IQ.
Last week, CN made it providing $ 34bn cash-by-shares that the KCS committee said it was better than the existing agreement with the CP. KCS said it had notified CP that it would have Friday to approve the offer or terminate the agreement in favor of CN.
On Monday, the moderator said it could take a hard look at the voting trustees as they work at CN, adding that such use “is an opportunity, not a right” and pointed out that CN and KCS are facing “significant burden” to show that their merger is in the public interest.
“STB is sending a clear notification and the CN organization has a responsibility to comply. The risks of believing that voting is not acceptable are more likely to be ignored, “Hohn said in the letter.
He added: “CN already has a lot of railways in North America; there is no need for KCS to succeed in the future. Now is the time to address the problem.”
Two Canadian railways envy KCS because it could give each of them the opportunity to link their operations from Canada to Mexico via the US at a time when cross-border trade is expected to grow significantly.
Combined with CP plus the amount of people who will use it but the connected company is still less than the six remaining vendors with the money. In contrast, CN-affiliated KCS makes the third largest railway.
TCI is opposed to what it wants to offer with CN to make a voting decision because they could be forced to sell KCS regardless of whether the regulators would ban the merger. In addition, the CN will also lose C $ 2bn in the suspension fee if the contract fails to get legal approval.
In a letter, Hohn stated: “If you and the committee choose to ignore the directives and sign a memorandum of understanding, but the prospect of voting is not justified and cost C $ 2bn, we can expect you to resign while you are the CEO.”
The U.S. Department of Justice also stated earlier this month that “what CN wants to buy from KCS appears to be more competitive than the risks posed by the CP-KCS merger”.
The antitrust regulator also said that the integration of CN-KCS could lead to the elimination of competition in a number of both rail-operated routes.