Photo: The Canadian Press
Canadian Pacific Railway president and CEO Keith Creel

CALGARY — Canadian Pacific Railway Ltd. says it is appealing to the U.S. regulator that governs railway mergers to dispute a claim by Canadian National Railway Co. that its rival bid for Kansas City Southern will be assessed in the same way as CP’s bid.

On Tuesday, Montreal-based CN announced a cash-and-stock bid valued at US$33.7 billion for Kansas City-based KCS, topping one made last month by Calgary-based CP Rail valued at US$25 billion.

“Because of the far more serious public interest concerns posed by CN’s proposed acquisition of KCS, CN’s suggestion that its proposal should be subject to the same regulatory treatment as the CP-KCS transaction is incorrect,” CP said in a news release on Wednesday ahead of its annual general meeting.

“Whereas a Canadian Pacific transaction raises none of the issues that motivated the new merger rules in 2001, the CN proposal raises all of them, especially competitive and downstream consolidation concerns.”

CP charges that a CN-KCS merger would “destabilize” the rail network balance in North America that has prevented further consolidation of the six largest railroads for two decades, adding it would leave CP a disadvantaged “odd-man-out” in a six-railroad North America.

CP has asked the U.S. Surface Transportation Board to rule that its combination with KCS qualifies under a waiver the regulator granted to KCS in 2001 from more stringent merger rules adopted to protect competition.

It says the STB should make it clear that CN’s bid will not qualify for the same exemption.

Also Wednesday, CN announced that it has notified the STB that it intends to apply for authority to combine with KCS under current merger rules and seeking approval of its plan to employ a voting trust so that KCS shareholders can be paid out while awaiting final STB approval.

“We believe the STB and our customers will recognize that CN presents the best solution for the continued growth, development and prosperity of the North American economy,” said CEO Jean-Jacques Ruest in a statement.

“CN has made a superior proposal and is committed to satisfying the current STB merger rules. CN is confident that the STB will approve the voting trust, which will permit KCS shareholders to crystallize the value of its U.S. and Mexico franchise, and then permit the STB to undertake the careful review process it should take following the closing into the voting trust.”

The company said it is confident it can address any reasonable remediation concerns and it supports an STB review under modern rules, as opposed to “rules from four decades ago that have been opposed by virtually every other party to have filed before the STB.”

KCS’s rail assets in Mexico have long made it a desirable takeover target.

A CN-KCS combination would be the third-largest Class 1 railroad in North America by revenue, while a CP-KCS merger would remain the smallest of the six remaining railroads.

There was only brief mention of the proposed KCS merger at the CP annual meeting on Wednesday morning, where shareholders voted 99 per cent in favour of a share-split resolution to issue five new CP shares for each existing share.

CP is to issue its second quarter financial results after markets close on Wednesday.