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Railroad takeover stalls

OMAHA, Neb. — 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.

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.

The Surface Transportation Board has 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.

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