Item 1.01. Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On September 15, 2021, Canadian Pacific Railway Limited, a Canadian corporation
(the "Corporation") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Kansas City Southern, a Delaware corporation ("Kansas City
Southern"), Cygnus Merger Sub 1 Corporation, a Delaware corporation and a direct
wholly owned subsidiary of the Corporation ("Surviving Merger Sub") and Cygnus
Merger Sub 2 Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Surviving Merger Sub ("First Merger Sub").
Immediately prior to execution of the Merger Agreement, Kansas City Southern
terminated the Agreement and Plan of Merger, dated as of May 21, 2021 (the "CN
Agreement"), by and among Canadian National Railway Company ("CN"), Brooklyn
Merger Sub, Inc. and Kansas City Southern. In connection with such termination,
Kansas City Southern paid or will pay the Company Termination Fee and the CP
Termination Fee Refund (each as defined in the CN Agreement) to CN and Brooklyn
US Holding, Inc., respectively, pursuant to and in accordance with the terms of
the CN Agreement. The Corporation has agreed to remit, or cause Canadian Pacific
Railway Company ("CPRC"), on behalf of and at the direction of the Corporation,
to remit to Kansas City Southern $700,000,000 in connection with Kansas City
Southern's payment of the Company Termination Fee (as defined in the CN
Agreement) to CN. In addition, the Corporation has agreed to remit to Kansas
City Southern $700,000,000 in connection with Kansas City Southern's payment of
the CP Termination Fee Refund (as defined in the CN Agreement) to Brooklyn US
Holding, Inc., such remittance constituting a refund and return by the
Corporation of the "Company Termination Fee" received by the Corporation from
Kansas City Southern on the termination of the merger agreement by and among the
Corporation, Kansas City Southern, Surviving Merger Sub and First Merger Sub
dated March 21, 2021.
The Merger Agreement provides, among other things, that subject to the
satisfaction or waiver of the conditions set forth therein (1) First Merger Sub
will merge with and into the Kansas City Southern (the "First Merger"), with
Kansas City Southern surviving the First Merger as a direct, wholly owned
subsidiary of Surviving Merger Sub, and (2) immediately following the effective
time of the First Merger (the "Effective Time"), Kansas City Southern will merge
with and into Surviving Merger Sub (the "Second Merger" and, together with the
First Merger, the "Mergers"), with Surviving Merger Sub surviving the Second
Merger as a direct, wholly owned subsidiary of the Corporation.
Immediately following the Second Merger and certain internal transactions, all
of the stock of Surviving Merger Sub, as successor to Kansas City Southern, will
be deposited into a voting trust subject to a voting trust agreement (the
"Voting Trust Transaction"), pending final control approval by the Surface
Transportation Board (the "STB").
Merger Consideration
Under the Merger Agreement, at the Effective Time, each share of common stock,
par value $0.01 per share, of Kansas City Southern that is outstanding
immediately prior to the Effective Time (other than certain excluded shares as
described in the Merger Agreement) will be converted into the right to receive
(1) 2.884 common shares of the Corporation and (2) $90 in cash, without interest
(collectively, the "Merger Consideration"), and each share of preferred stock,
par value $25 per share, that is outstanding immediately prior to the Effective
Time (other than certain excluded shares as described in the Merger Agreement)
will be converted into the right to receive $37.50 in cash, without interest.
Conditions to the Mergers
The respective obligations of Kansas City Southern and the Corporation to
consummate the Mergers are subject to the satisfaction or waiver of a number of
customary conditions, including: (1) the adoption of the Merger Agreement by
Kansas City Southern's stockholders; (2) approval of the issuance of the
Corporation's common shares in the First Merger by the Corporation's
shareholders; (3) the Corporation's registration statement on Form F-4 having
been declared effective by the Securities and Exchange Commission; (4) the
absence of any injunction or similar order prohibiting the consummation of the
Mergers or the Voting Trust Transaction; (5) approval by the Comisión Federal de
Competencia Económica (the Mexican Antitrust Commission) and the Instituto
Federal de Telecomunicaciones (the Mexican Federal Telecommunications Institute)
of the transactions contemplated by the Merger Agreement (collectively, the
"Mexican Regulatory Approvals"); (6) the Corporation's common shares issuable in
the First Merger having been approved for listing on the New York Stock Exchange
and the Toronto Stock Exchange; (7) accuracy of the other party's
representations and warranties, subject to certain materiality standards set
forth in the Merger Agreement; (8) compliance by the other party in all material
respects with such other party's obligations under the Merger Agreement; and
(9) with respect to the Corporation, the absence of a Company Material Adverse
Effect, and with respect to Kansas City Southern, the absence of a Parent
Material Effect (as such terms are defined in the Merger Agreement).
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Representations and Warranties; Covenants
The Merger Agreement contains customary representations and warranties given by
Kansas City Southern, the Corporation, Surviving Merger Sub and First Merger
Sub. The Merger Agreement also contains customary pre-closing covenants,
including covenants by each of the parties relating to conduct of their business
prior to the closing of the Mergers and, in the case of Kansas City Southern,
during the pendency of the voting trust. The parties have agreed to take all
actions necessary, proper or advisable to complete the Mergers as promptly as
practicable. The Merger Agreement also provides that, during the period from the
date of the Merger Agreement until the Effective Time, each of Kansas City
Southern and the Corporation is subject to certain restrictions on its ability
to solicit alternative acquisition proposals from third parties, to provide
information to third parties and to engage in discussions with third parties
regarding alternative acquisition proposals, subject to customary exceptions.
Following final approval of the transaction by the STB (or at such earlier date
following the closing of the Mergers as may be approved by the STB), four
members of the Kansas City Southern board of directors will be appointed to the
Corporation board of directors.
Treatment of Equity Awards
Under the Merger Agreement, at the Effective Time, (1) each outstanding Kansas
City Southern stock option will be converted into the right to receive an amount
in cash equal to the value of the Merger Consideration in respect of each share
of Kansas City Southern common stock subject to such option, less the applicable
exercise price, (2) each outstanding Kansas City Southern restricted share will
. . .
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under
an Off-Balance Sheet Arrangement of a Registrant.
The information contained in Item 1.01 of this Current Report on Form 8-K under
the heading "Credit Agreement" is hereby incorporated into this Item 2.03 by
reference.
Item 8.01 Other Events.
Bridge Facility Commitment Letter
In connection with the Mergers, on September 15, 2021, the Corporation, as
covenantor, and CPRC, as borrower, entered into a bridge facility commitment
letter (the "Bridge Commitment Letter") with Bank of Montreal ("BMO") and
Goldman Sachs Lending Partners LLC ("Goldman Sachs") pursuant to which BMO and
Goldman Sachs have committed to provide a 364-day senior unsecured bridge term
loan facility in an aggregate principal amount of $8.5 billion for the purpose
of funding the Merger Consideration and paying fees and expenses related
thereto. The Corporation currently expects to replace the bridge facility prior
to the closing of the Mergers with permanent financing, which may include the
issuance of debt securities.
The commitments under the Bridge Commitment Letter are subject to customary
conditions, including the execution and delivery of definitive documentation
with respect to the bridge facility in accordance with the terms set forth in
the Bridge Commitment Letter.
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Canadian Pacific Backstop Commitment Letter
In connection with the Mergers, on September 15, 2021, the Corporation, as
covenantor, and CPRC, as borrower, entered into a bridge facility commitment
letter (the "Canadian Pacific Backstop Commitment Letter") with BMO and Goldman
Sachs pursuant to which, in the event the Corporation and CPRC do not obtain
certain required consents from the lenders under that certain Amended and
Restated Credit Agreement dated as of September 27, 2019 (as amended from time
to time, the "Existing Canadian Pacific Credit Agreement") made among CPRC as
borrower, the Corporation as covenantor, the lenders party thereto and Royal
Bank of Canada as administrative agent, the Corporation and CPRC may obtain debt
financing from BMO and Goldman Sachs in an aggregate principal amount of up to
$1.3 billion to backstop the existing Canadian Pacific Credit Agreement.
The commitments under the Canadian Pacific Backstop Commitment Letter are
subject to customary conditions, including the execution and delivery of
definitive documentation in accordance with the terms set forth in the Canadian
Pacific Backstop Commitment Letter.
Kansas City Southern Backstop Commitment Letter
In connection with the Mergers, on September 15, 2021, the Corporation, as
covenantor, and CPRC, as initial borrower, entered into a commitment letter (the
"Kansas City Southern Backstop Commitment Letter") with BMO and Goldman Sachs
pursuant to which, in the event Kansas City Southern does not obtain certain
required consents from the lenders under that certain Amended and Restated
Credit Agreement dated as of March 9, 2019 (as amended from time to time, the
"Existing Kansas City Southern Credit Agreement") made among Kansas City
Southern, as borrower, the lenders party thereto and Bank of America, N.A., as
administrative agent, Kansas City Southern, as borrower, may obtain debt
financing from BMO and Goldman Sachs in an aggregate principal amount of up to
$600 million to backstop the existing Kansas City Southern Credit Agreement.
The commitments under the Kansas City Southern Backstop Commitment Letter are
subject to customary conditions, including the execution and delivery of
definitive documentation in accordance with the terms set forth in the Kansas
City Southern Backstop Commitment Letter.
Press Release
On September 15, 2021, the Corporation and Kansas City Southern issued a joint
press release announcing their entry into the Merger Agreement. A copy of the
joint press release is filed as Exhibit 99.1 to this Current Report on Form 8-K
and is incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Description
2.1* Agreement and Plan of Merger, dated as of September 15, 2021,
by and among Canadian Pacific Railway Limited, Cygnus Merger Sub
1 Corporation, Cygnus Merger Sub 2 Corporation and Kansas City
Southern.
99.1 Joint Press Release, dated September 15, 2021.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
* Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The
Corporation hereby undertakes to furnish supplemental copies of any omitted
schedules upon request by the SEC; provided, however, that the Corporation may
request confidential treatment pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended, for any schedules so furnished.
* * *
FORWARD-LOOKING STATEMENTS AND INFORMATION
This current report includes certain forward looking statements and forward
looking information (collectively, FLI) to provide the Corporation's and Kansas
City Southern's shareholders and potential investors with information about the
Corporation, Kansas City Southern and their respective subsidiaries and
affiliates, including each company's management's
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respective assessment of the Corporation, Kansas City Southern and their
respective subsidiaries' future plans and operations, which FLI may not be
appropriate for other purposes. FLI is typically identified by words such as
"anticipate", "expect", "project", "estimate", "forecast", "plan", "intend",
"target", "believe", "likely" and similar words suggesting future outcomes or
statements regarding an outlook. All statements other than statements of
historical fact may be FLI.
Although we believe that the FLI is reasonable based on the information
available today and processes used to prepare it, such statements are not
guarantees of future performance and you are cautioned against placing undue
reliance on FLI. By its nature, FLI involves a variety of assumptions, which are
based upon factors that may be difficult to predict and that may involve known
and unknown risks and uncertainties and other factors which may cause actual
results, levels of activity and achievements to differ materially from those
expressed or implied by these FLI, including, but not limited to, the following:
the timing and completion of the transaction, including receipt of regulatory
and shareholder approvals and the satisfaction of other conditions precedent;
interloper risk; the realization of anticipated benefits and synergies of the
transaction and the timing thereof; the success of integration plans; the focus
of management time and attention on the transaction and other disruptions
arising from the transaction; changes in business strategy and strategic
opportunities; estimated future dividends; financial strength and flexibility;
debt and equity market conditions, including the ability to access capital
markets on favourable terms or at all; cost of debt and equity capital;
potential changes in the Corporation's share price which may negatively impact
the value of consideration offered to Kansas City Southern shareholders; the
ability of management of the Corporation, its subsidiaries and affiliates to
execute key priorities, including those in connection with the transaction;
general Canadian, U.S., Mexican and global social, economic, political, credit
and business conditions; risks associated with agricultural production such as
weather conditions and insect populations; the availability and price of energy
commodities; the effects of competition and pricing pressures, including
competition from other rail carriers, trucking companies and maritime shippers
in Canada, the U.S. and Mexico; North American and global economic growth;
industry capacity; shifts in market demand; changes in commodity prices and
commodity demand; uncertainty surrounding timing and volumes of commodities
being shipped; inflation; geopolitical instability; changes in laws, regulations
and government policies, including regulation of rates; changes in taxes and tax
rates; potential increases in maintenance and operating costs; changes in fuel
prices; disruption in fuel supplies; uncertainties of investigations,
proceedings or other types of claims and litigation; compliance with
environmental regulations; labour disputes; changes in labour costs and labour
difficulties; risks and liabilities arising from derailments; transportation of
dangerous goods; timing of completion of capital and maintenance projects;
sufficiency of budgeted capital expenditures in carrying out business plans;
services and infrastructure; the satisfaction by third parties of their
obligations; currency and interest rate fluctuations; exchange rates; effects of
changes in market conditions and discount rates on the financial position of
pension plans and investments; trade restrictions or other changes to
international trade arrangements; the effects of current and future
multinational trade agreements on the level of trade among Canada, the U.S. and
Mexico; climate change and the market and regulatory responses to climate
change; anticipated in-service dates; success of hedging activities; operational
performance and reliability; customer, shareholder, regulatory and other
stakeholder approvals and support; regulatory and legislative decisions and
actions; the adverse impact of any termination or revocation by the Mexican
government of Kansas City Southern de Mexico, S.A. de C.V.'s Concession; public
opinion; various events that could disrupt operations, including severe weather,
such as droughts, floods, avalanches and earthquakes, and cybersecurity attacks,
as well as security threats and governmental response to them, and technological
changes; acts of terrorism, war or other acts of violence or crime or risk of
such activities; insurance coverage limitations; material adverse changes in
economic and industry conditions, including the availability of short and
long-term financing; and the pandemic created by the outbreak of COVID-19 and
its variants, and resulting effects on economic conditions, the demand
environment for logistics requirements and energy prices, restrictions imposed
by public health authorities or governments, fiscal and monetary policy
responses by governments and financial institutions, and disruptions to global
supply chains.
We caution that the foregoing list of factors is not exhaustive and is made as
of the date hereof. Additional information about these and other assumptions,
risks and uncertainties can be found in reports and filings by the Corporation
and Kansas City Southern with Canadian and U.S. securities regulators, including
any proxy statement, prospectus, material change report, management information
circular or registration statement to be filed in connection with the
transaction. Reference should be made to "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Forward
Looking Statements" in the Corporation's and Kansas City Southern's annual and
interim reports on Form 10-K and 10-Q. Due to the interdependencies and
correlation of these factors, as well as other factors, the impact of any one
assumption, risk or uncertainty on FLI cannot be determined with certainty.
Except to the extent required by law, we assume no obligation to publicly update
or revise any FLI, whether as a result of new information, future events or
otherwise. All FLI in this current report is expressly qualified in its entirety
by these cautionary statements.
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ADDITIONAL INFORMATION ABOUT THE TRANSACTION AND WHERE TO FIND IT
The Corporation will file with the U.S. Securities and Exchange Commission (the
"SEC") a registration statement on Form F-4, which will include a proxy
statement of Kansas City Southern that also constitutes a prospectus of the
Corporation, and any other documents in connection with the transaction. The
definitive proxy statement/prospectus will be sent to the shareholders of Kansas
City Southern. The Corporation will also file a management proxy circular in
connection with the transaction with applicable securities regulators in Canada
and the management proxy circular will be sent to the Corporation's
shareholders. INVESTORS, STOCKHOLDERS AND SHAREHOLDERS OF KANSAS CITY SOUTHERN
AND THE CORPORATION ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND
MANAGEMENT PROXY CIRCULAR, AS APPLICABLE, AND ANY OTHER DOCUMENTS FILED OR TO BE
FILED WITH THE SEC OR APPLICABLE SECURITIES REGULATORS IN CANADA IN CONNECTION
WITH THE TRANSACTION WHEN THEY BECOME AVAILABLE, AS THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT KANSAS CITY SOUTHERN, THE CORPORATION, THE TRANSACTION AND
RELATED MATTERS. The registration statement and proxy statement/prospectus and
other documents filed by the Corporation and Kansas City Southern with the SEC,
when filed, will be available free of charge at the SEC's website at
www.sec.gov. In addition, investors and shareholders will be able to obtain free
copies of the registration statement, proxy statement/prospectus, management
proxy circular and other documents which will be filed with the SEC and
applicable securities regulators in Canada by the Corporation online at
investor.cpr.ca and www.sedar.com, upon written request delivered to the
Corporation at 7550 Ogden Dale Road S.E., Calgary, Alberta, T2C 4X9, Attention:
Office of the Corporate Secretary, or by calling the Corporation at
1-403-319-7000, and will be able to obtain free copies of the proxy
statement/prospectus and other documents filed with the SEC by Kansas City
Southern online at www.investors.kcsouthern.com, upon written request delivered
to Kansas City Southern at 427 West 12th Street, Kansas City, Missouri 64105,
Attention: Corporate Secretary, or by calling Kansas City Southern's Corporate
Secretary's Office by telephone at 1-888-800-3690 or by email at
corpsec@kcsouthern.com.
You may also read and copy any reports, statements and other information filed
by Kansas City Southern and the Corporation with the SEC at the SEC public
reference room at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please
call the SEC at 1-800-732-0330 or visit the SEC's website for further
information on its public reference room. This current report shall not
constitute an offer to sell or the solicitation of an offer to buy any
securities, nor shall there be any sale of securities in any jurisdiction in
which such offer, solicitation or sale would be unlawful prior to appropriate
registration or qualification under the securities laws of such jurisdiction. No
offering of securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the U.S. Securities Act of 1933, as amended.
PARTICIPANTS IN THE SOLICITATION OF PROXIES
This current report is not a solicitation of proxies in connection with the
transaction. However, under SEC rules, the Corporation, Kansas City Southern,
and certain of their respective directors and executive officers may be deemed
to be participants in the solicitation of proxies in connection with the
transaction. Information about the Corporation's directors and executive
officers may be found in its 2021 Management Proxy Circular, dated March 10,
2021, as well as its 2020 Annual Report on Form 10-K filed with the SEC and
applicable securities regulators in Canada on February 18, 2021, available on
its website at investor.cpr.ca and at www.sedar.com and www.sec.gov. Information
about Kansas City Southern's directors and executive officers may be found on
its website at www.kcsouthern.com and in its 2020 Annual Report on Form 10-K
filed with the SEC on January 29, 2021, available at
www.investors.kcsouthern.com and www.sec.gov. These documents can be obtained
free of charge from the sources indicated above. Additional information
regarding the interests of such potential participants in the solicitation of
proxies in connection with the transaction will be included in the proxy
statement/prospectus and management proxy circular and other relevant materials
filed with the SEC and applicable securities regulators in Canada when they
become available.
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