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Kansas City Southern Kansas City Southern said it will hold takeover talks with Canadian National Railway Co. Canadian National Railway Co., which trumped the bid for the U.S. carrier by rival Canadian Pacific Railway Ltd. Canadian Pacific Railway Ltd.

The Missouri-based railway, the target of a bidding war between the two Canadian rail carriers, said Saturday it will negotiate with CN to determine if CN’s higher offer is a “superior proposal” to that of CP.

CP and KCS said in March they had agreed to a cash-and-stock takeover by the Calgary-based railway worth US$25.2-billion or US$266 a share. But those plans were thrown in question in April when CN made an unsolicited bid for KCS that was worth about 20 per more, at US$29.9-billion or US$325 a share.

Previously: Takeover tussle intensifies as CN accuses CP of misleading investors in battle for Kansas City Southern

Both proposals require approvals by KCS shareholders and the U.S. regulator, the Surface Transportation Board.

KCS said it will provide CN with “non-public” information in negotiations, but there is no assurance it will reach an agreement. “KCS remains bound by the terms of the CP merger agreement, and KCS’s board has not determined that CN’s proposal in fact constitutes a … superior proposal as defined in the merger agreement with CP,” KCS said.

CN said in a statement it looks forward to talks with KCS’s board, and finalizing its takeover “promptly.”

“CN’s proposal offers a clear path to completion and is structured in a way that gives KCS shareholders both greater immediate value and the opportunity to participate in the future upside of the combined company,” CN said.

KCS, the smallest of the seven major railroads operating in the U.S., has tracks that run south from the U.S. midwest to the Gulf of Mexico and deep into Mexico. Both Canadian carriers see the KCS takeover as a way to extend their networks into new southern U.S. markets and reach ports on the Gulf of Mexico and Mexico’s Pacific Coast.

Both railways say adding KCS to their network will improve service for customers.

In a statement, CP said it supports KCS’s decision to hold talks with its rival.

“The board of KCS is simply meeting its obligations under the merger agreement with CP and fulfilling its fiduciary duty to its shareholders by assessing the CN offer,” CP said. “Not only is this the correct process and one that is clearly required by the merger agreement, in fact we are encouraged that they will be taking a hard look at the details of the CN offer as soon as possible, which we believe will lead them to question the true value and deal certainty of their proposal.”

The STB said on Friday it will review CP’s possible application to take over KCS under rules that treat KCS differently from the other large U.S. railways. Given KCS’s smaller size, the STB rules on takeovers waive the requirement that a takeover of KCS be in the public’s interest and pro-competitive. The STB said it will continue to apply this waiver, should the takeover proceed.

CP has not signalled whether it plans to raise its offer to match CN’s. Keith Creel, CP’s chief executive officer, on April 21 called CN’s higher bid “fantasy money”, but did not make a higher bid.

According to the CP and KCS agreement, KCS can terminate the deal in favour of a better proposal and pay CP a fee of US$700-million. However, CP has five business days in which it can try to match or beat the better offer.

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