Item 1.01. Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On March 21, 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").
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, 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 approval of the transaction 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) 0.489 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 of the Voting Trust
Transaction by the STB, if required; (6) 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; (7) 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; (8) accuracy of the
other party's representations and warranties, subject to certain materiality
standards set forth in the Merger Agreement; (9) compliance by the other party
in all material respects with such other party's obligations under the Merger
Agreement; and (10) 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).
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.
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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 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
On March 21, 2021, in connection with the announcement of the Mergers, the
Corporation and Keith Creel, President and Chief Executive Officer of the
Corporation, entered into a stock option agreement and amendment to Mr. Creel's
executive employment agreement, dated July 23, 2016 (as amended from time to
time, the "Employment Agreement") that is intended to see him lead the
Corporation until at least early 2026. Pursuant to the agreement, on March 27,
2021, the Corporation will grant Mr. Creel an option to purchase a number of the
Corporation's common shares with a grant date accounting value of US$8.4 million
(the "Option Award"). The Option Award, which will be granted under the
Corporation's Stock Option Incentive Plan, will have an exercise price equal to
the closing price of the Corporation's common shares on March 26, 2021 and will
become exercisable in substantially equal portions on each of the first, second,
third and fourth anniversary of the grant date. The options will expire on
March 27, 2028 and will be subject to the terms and conditions of the Plan.
In consideration of the Option Award, the Corporation and Mr. Creel agreed to
further amend the Employment Agreement to reduce the value of the annual
long-term incentive plan award Mr. Creel is entitled to receive by
US$2.1 million in each of 2022, 2023, 2024 and 2025 (an aggregate of $8.4
million). In addition, the amendment to the Employment Agreement provides that
if Mr. Creel resigns or retires prior to January 31, 2026, any performance stock
units granted to him after March 1, 2021 will not be deemed
"retirement-eligible", notwithstanding the terms of Mr. Creel's Employment
Agreement or the applicable performance share unit plan.
The foregoing description does not purport to be complete and is qualified in
its entirety by reference to the complete text of Mr. Creel's stock option
agreement and Employment Agreement amendment, a copy of which is attached hereto
as Exhibit 10.1, and is incorporated herein by reference.
Item 7.01 Regulation FD Disclosure.
A copy of the investor presentation used in connection with the investor
conference call referred to in Item 8.01 below is attached as Exhibit 99.1 and
incorporated by reference herein.
This information is furnished pursuant to Item 7.01 of Form 8-K and shall not be
deemed to be "filed" for the purposes of Section 18 of the Securities Exchange
Act of 1934 ("Exchange Act"), as amended, or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by reference in
any filing under the Securities Act of 1933, as amended, or the Exchange Act,
except as expressly stated by specific reference in such filing.
Item 8.01 Other Events.
On March 21, 2021, the Corporation and Kansas City Southern issued a joint press
release announcing their entry into the Merger Agreement and held a joint
investor conference call to discuss the announcement. A copy of the press
release is filed as Exhibit 99.2 to this Current Report on Form 8-K and is
incorporated herein by reference.
Also on March 21, 2021, in connection with the announcement of the Merger
Agreement, the Corporation issued a press release announcing the stock option
agreement and amendment to Mr. Creel's Employment Agreement. A copy of the press
release is filed as Exhibit 99.3 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 March 21, 2021, by and
among Canadian Pacific Railway Limited, Cygnus Merger Sub 1
Corporation, Cygnus Merger Sub 2 Corporation and Kansas City Southern.
10.1 Stock Option Agreement and Amendment to the Executive Employment
Agreement, dated as of March 21, 2021, by and between Canadian Pacific
Railway Limited and Keith Creel.
99.1 Presentation Slides: Investor Presentation posted on March 21, 2021.
99.2 Joint Press Release, dated March 21, 2021.
99.3 Press Release, dated March 21, 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.
* * *
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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 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. In particular,
this current report contains FLI pertaining to, but not limited to, information
with respect to the following: the transaction; the combined company's scale;
financial growth; future business prospects and performance; future shareholder
returns; cash flows and enhanced margins; synergies; leadership and governance
structure; and office and headquarter locations.
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; 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;
the previously announced proposed share split of the Corporation's issued and
outstanding common shares and whether it will receive the requisite shareholder
and regulatory approvals; 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; industry
capacity; shifts in market demand; changes in commodity prices; 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; 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 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. 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 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 AND SHAREHOLDERS OF
THE CORPORATION AND KANSAS CITY SOUTHERN 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 THE CORPORATION, KANSAS CITY SOUTHERN,
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 the Corporation and Kansas City Southern 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 communication 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 communication 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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