Chris Hohn tells Canadian National to drop $ 34 billion bid in South Kansas City

Chris Hohn, the UK’s hedge fund manager, has demanded that the Canadian National cancel its $ 34 billion search for a rival U.S. railroad in Kansas City Southern.

Hohn’s hedge fund TCI, CN’s fifth-largest shareholder, with a $ 3.3 million stake, told the Montreal-based company on Tuesday to drop a key feature of its takeover bid or leave the deal immediately.

TCI has discussed CN’s intention to build confidence in the vote, through which transactions would be paid to KCS shareholders before they receive full approval from the Surface Transport Commission, the main railway regulator.

Voting trusts are vehicles that allow the buyer of an asset to be paid immediately to the shareholder of the target company, while regulators investigate the merger proposal. Companies that want to merge during this process continue to operate independently.

In March, the Pacific rival agreed Paying $ 29 billion in cash and stock The agreement also included the use of the voting trust for the purchase of KCS. According to S&P Capital IQ, TCI is also the largest shareholder in CP, with an 8.4 percent stake valued at $ 4.3 million.

Last week, CN did it $ 34 billion in cash and stock offerings KCS management said it was bigger than its agreement with CP. The KCS said it had informed the CP that it had until this Friday to improve the offer or that it would support the CN deal.

On Monday, the regulator said it would be a tougher stance on vote confidence when applied to the CN, adding that using that structure was “a privilege, not a right” and that the CN and KCS would have a “heavier burden”. to show that their combination is in the public interest.

“STB is sending a clear signal and the CN committee has a duty to listen. The risk of not accepting the confidence to vote is not too great to consider,” Hohn said in the letter.

He added: “CN already has a huge North American rail network; it doesn’t need KCS to move forward in the future. It’s time to end this bad adventure.”

Both Canadian railroad teams will covet KCS, which would allow one of them to be able to link Mexican operations from Canada to the U.S. through the U.S. at a time when cross-border trade is expected to be significant.

Combining with CP would determine the number of operators, but the merged company would be the lowest in terms of revenue among the other six major operators. In contrast, the combined KCS and CN would create the third largest train operator.

The TCI is opposed to the current offer proposed by the CN to create confidence in the vote, which could force KCS to sell at a loss if regulators block the merger. In addition, CN would lose a loss of $ 2 billion if the agreement does not gain regulatory approval.

Hohn said in his letter: “If you and the management decide to abandon this recommendation and choose a reconciliation agreement at the time, but the vote confidence will not be accepted, it would result in a loss of $ 2 billion. You and the CEO immediately resign. “.

The U.S. Department of Justice also said earlier this month that “CN’s proposal for KCS poses greater risks to competition than the risks posed by merging CP-KCS.”

The antitrust regulator has determined that the CN-KCS combination could lead to the elimination of competition on certain routes operated by the two railways.