UPDATE 1-Canadian National Railway shareholder urges board to amend Kansas City deal

(Adds response from Canadian National)

May 18 (Reuters) - Billionaire hedge fund manager Chris Hohn on Tuesday urged Canadian National Railway to abandon its $33.6 billion bid for Kansas City Southern unless the Canadian railroad operator changed its agreement to drop a key feature that could invite more regulatory scrutiny.

Hohn's TCI Fund Management, which has a 2.93% stake in Canadian National (CN), said the company should not go ahead with its plan to create a voting trust structure for the takeover.

"CN regularly engages with and welcomes constructive input from its shareholders. CN's board believes its pro-competitive combination with Kansas City Southern is in the best interest of CN's shareholders," a spokesperson for CN in a statement.

CN and Canadian Pacific Railway are seeking to buy U.S. railroad Kansas City Southern to create a North American railway spanning the United States, Mexico and Canada.

Kansas City last week accepted CN's $33.6 billion acquisition offer, upending a $29 billion deal with Canadian Pacific.

"We think it is negligent and hugely irresponsible for the CN board to commit C$2 billion of shareholders' money on whether the STB will approve the voting trust for the CN-KCS transaction," TCI said in a letter to CN Chairman Robert Pace.

The C$2 billion stems from the $700 million breakup fee CN would pay Canadian Pacific for upending their deal, and the $1 billion it would pay Kansas City if the U.S. Surface Transportation Board (STB) shoots down the voting trust.

A voting trust is a temporary ringfenced structure that CN would use to hold Kansas City after the deal closes without exercising control over it, until the STB approves or rejects the acquisition.

TCI is also the largest shareholder of Canadian Pacific with an 8.38% stake, according to Refinitiv data.

"It is now clear that CN should abandon its pursuit of KCS unless the merger agreement is amended such that it is not conditional on a voting trust being approved," TCI added.

TCI said it believes the STB reviewing CN's bid under the new rules makes approval for the deal uncertain. (Reporting by Sanjana Shivdas in Bengaluru; Editing by Shounak Dasgupta)