CALGARY — Canadian Pacific Railway Ltd. (CP) isn’t giving up on what it calls a “once-in-a-lifetime partnership.” The Calgary-based railway on Aug. 10 announced it has submitted what it considers to be “a superior proposal” to acquire Kansas City Southern (KCS) in a stock and cash transaction representing an enterprise value of approximately $31 billion.

The proposed transaction, which has the unanimous support of the CP board of directors, values KCS at $300 per share, representing a 34% premium, based on the CP closing price on Aug. 9, 2021, and KCS unaffected closing price on March 19, 2021. Under terms of the proposed transaction, common shareholders of KCS will receive 2.884 CP common shares and $90 in cash for each share of KCS common stock held. The proposed transaction includes the assumption of $3.8 billion of outstanding KCS debt.

CP said the proposal represents improved terms to those agreed to in the CP-KCS merger agreement, entered into on March 21, 2021, that are substantially similar to those in the CN merger agreement but offers significantly higher regulatory certainty than the proposed Canadian National Railway (CN) merger and significantly higher value than the company’s previously agreed combination.

CP’s proposal comes nearly three months after KCS rejected its initial bid and moved on to a deal with CN. Under the terms of the CN merger agreement, each share of KCS common stock will be exchanged for $200 in cash and 1.129 shares of CN common stock, which implies a total enterprise value of $33.6 billion.

In connection with the termination of the CP merger agreement, KCS agreed to pay CP a breakup fee of $700 million, which will be reimbursed by CN. KCS will be obligated to refund this amount under certain limited circumstances, including if KCS terminates the CN merger agreement to accept a superior proposal, KCS said.

In an Aug. 10 letter to the board of directors of KCS, Keith Creel, president and chief executive officer of CP, said that while CP understood and respected the KCS board of directors’ decision to explore a transaction with CN, it always has believed that CN’s deal “was not executable and an attempt to dismantle the unique, pro-competitive deal that CP and KCS had agreed upon.”

“At the time of CN’s offer in May, we chose to not make a revised offer because we believed that engaging in a bidding war with CN would have been value destructive to CP shareholders, and we continue to stand by that decision as having been the right one,” Mr. Creel said. “However, we believe that now is the right time for us to re-engage with KCS, as the regulatory uncertainty of the proposed CN merger has placed KCS stockholders in the unfortunate position of having to vote on the proposed CN merger and, as a consequence of approving such proposal, eliminate KCS’s ability to consider superior offers, all the while not having any level of certainty with respect to whether the STB will approve CN’s use of a voting trust. We are excited to provide KCS stockholders a significantly more attractive alternative to this situation: this opportunity to turn down the CN merger proposal and once again pursue a combination of CP and KCS — a more certain transaction that offers compelling short-term and long-term value that is actually achievable, already has the benefit of STB approval to use a voting trust and is, in our view, the only viable Class 1 merger.”

In response to CP’s new bid, CN said the offer represents “another inferior proposal to acquire KCS.”

“CN and KCS’ agreed transaction remains superior and the best option for both companies’ stakeholders to deliver on a combination that will enhance competition and provide new servicing options for customers,” CN said.