CN and CP engage in war of words in fight over Kansas City Southern merger

Canadian National Railway (CNR.TO) and Canadian Pacific (CP.TO) engaged in a war of words this week over which company should merge with Kansas City Southern (KCS), calling the opposing offers "illusory and inferior" and "deliberately misleading."

CN filed a letter with the U.S. Surface Transportation Board (STB) on Friday that it said showed why its proposal to acquire KCS was pro-competitive and superior to CP's bid. The letter also aimed to "correct misleading statements" made by its rival. CN, Canada's largest railway, on Tuesday announced a cash-and-stock bid to purchase KCS valued at US$33.7 billion, topping CP's previously disclosed offer of US$25 billion.

Earlier this week, CP also filed a statement with the STB calling CN's proposal "illusory and inferior", saying the bid was "contrary to the public interest given its adverse impacts on competition and other serious concerns." CP argued that a merger between CN and KCS would "reduce competitive options for countless shippers", saying that both companies serve "many dozens" of shippers in common and both also serve shippers in Nebraska, Iowa, Illinois and Mississippi. In addition, both reach the port of Mobile, Ala., which CP does not. The company also pointed to parallel lines running between Baton Rouge, Fla., and New Orleans, La., which have in the past supported competition.

In its response, CN said its offer is superior and "can provide more public benefits by connecting the continent, promoting growth, and competing more aggressively with the trucking industry for long-haul movements."

"The fundamentally pro-competitive nature of the proposed CN-KCS combination, which will give customers better service options, is further enhanced by CN's commitment to address any competitive concerns under the current merger rules without seeking a waiver, as CP has done," CN wrote in its letter.

CN also said the claim that its merger would be "anticompetitive" is based on a "gross overstatement" of competitive overlap between the two railways and assumes nothing would be done to maintain competition.

"But as CP knows well, the major merger rules and board precedent require remedies to address any reduction of competition for the handful of customer facilities that are served by both CN and KCS," CN noted.

KCS said this week it will evaluate CN's proposal but has not made any additional statements about the offer.

CP said this week that more than 405 stakeholders have filed letters with the STB in support of its offer. CN said Friday it has engaged with customers and other stakeholders, and "many have expressed a desire to write letters of support that we will be sharing with the board in the coming days."

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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