We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Share Name | Share Symbol | Market | Type |
---|---|---|---|
Kansas City Southern | NYSE:KSU | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 293.59 | 0 | 01:00:00 |
Filed by Canadian National Railway Company
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: Kansas City Southern
Commission File No.: 001-04717
Date: May 20, 2021
The following transcript is from a webcast hosted by BofA Securities and Canadian National Railway Company (CN) on May 19, 2021 and made available on www.ConnectedContinent.com, the website maintained by CN providing information relating to its proposed combination with Kansas City Southern (KCS).
Jean-Jacques Ruest |
President, Chief Executive Officer & Director, Canadian National Railway Co. |
Thank you, Paul, and thank you, Ken (sic) [Fitz] (02:47), for these good words. Happy to have joined the Bank of America Transportation Conference for the last 20 years in good time and an exciting time, and today is an exciting time. So today is a particular moment for me to join the conference of Bank of America. |
I want to thank so Ill start by beginning by addressing a statement made by the Surface Transportation Board on Monday. The STB decision to defer consideration of our voting trust was based on the fact that our merger agreement was not available at the time we made the filing. However, as of yesterday, we have filed a merger agreement with the STB. We believe that once the STB undertake a full review of our voting trust, it will be evident our strong balance sheet, cash flow financial outlook, and industry-leading railing profile will provide certainty that we have the financial strength to satisfy the STB public interest analysis. |
I would like to use the remaining of this time to cover our operation today and our near-term outlook for 2021 and provide some commentary around our superior pro-competitive proposal to combine with KCS. We are roughly halfway to the second quarter, Im on page 4, and let me provide an update on our performance so far. |
Our top-line performance, revenue ton mile are up 12% quarter-to-date, from the continued economic recovery that were experiencing in many markets versus an economy that has that was halted last year at this time due to the pandemic. The pricing environment is supportive. We continue to maintain a very disciplined approach to yield management, and our strategy is working, including same-store pricing of 4.2% in Q1. We will continue to price ahead of rail inflation, especially at a time when inflation may pick up in the quarters to come. The recovery in the North American economy is driving solid carload demand for steel, aluminum shipment, as well as manufacturing are strong, and the shift toward lightweight electric vehicle becomes the trend. |
Propane volume are ramping up, with the addition of a second propane terminal in Prince Rupert in the last quarter. Inventory restocking and strong consumer demand in North America is also supporting sustained intermodal volume at the ports, as well as domestically, and that will continue to at least the second half and into the traditional peak season. |
Lumber price have reached an all-time record of $1,600 US per 1,000 board feet from strong level of construction, renovation, and remodeling, also driving strong shipment of panel and strong pricing as well for the rail movement of construction material. We have achieved our 14th consecutive month of record Canadian grain movement in April, and we continue to invest for the future of this franchise. We just recently placed an order for 1,000 new-generation and high-capacity hopper cars to enable moving more grain tonnage with fewer resource in the quarters to come. This follow a 2,500 grain car purchase that we purchased over the last few years, and our US grain is also doing very strongly right now. The new Teck coal business overcame this interchange where its brought on seamlessly on April 1, an example of an effective seamless interchange. |
Im extremely proud of the women and men of CN, who continue to deliver day in and day out to move the North American economy. We came out of the first quarter with a very fluid network and are prepared to enable the economic recovery of the continent. Our operating metrics continued to improve versus last year, including train length, train weight, terminal dwell. We continue to lead the industry on fuel efficiency, which is quite key to our ESG strategy, and achieved and we achieved a 3% improvement in April to date compared to last year. This is equivalent to a reduction of 75,000 tonne of CO2 emission, which is roughly equivalent to removing 15,000 vehicles from the road for one year, all efficiencies aspect that we will bring to the combination of a CN-KCS. |
Safety is a core value of CN, and Im extremely proud of their safety performance of this year. Our personal injury rate and accident rate were improved by an impressive 36% and 33% year-over-year as of May 15, living up to our core value. We continue deploying technology to make our railroad safer, more efficient, more reliable, and were starting to see the real benefit of this key project, including track and train inspection and automation of the likes. |
On page 5, we are encouraged with the economic recovery and the vaccine rollout, which is giving us a lot of confidence heading into the second half of 2021. We are building off a strong volume and pricing environment in Q1, and are looking to see the carload segment of our business to recover. The increase in industrial production will drive growth in our carload segment, namely chemical, forest products, steel, aluminum, fuel, and plastics. With that said, we are pleased with our financial outlook of 2021, which is targeting double-digit adjusted diluted EPS growth. To be clear, this is the same guidance that we provided in Q1 at the earning release. |
Our outlook is underpinned by high-single-digit volume growth in term of revenue ton mile. We expect to deliver free cash flow in the range of CAD 3 billion to CAD 3.3 billion, which will drive further improvement in free cash flow conversion, all of that with the headwind of a stronger Canadian dollar, which is running right now around CAD 0.81, much higher than last year. |
I will now make a few comments about our superior and proactive proposal to combine with the KCS. Im on page 6. Unlike the proposal of CP and KCS transaction, the proposed CN-KCS combination will be reviewed under the current merger rule, the only pro-competitive rule, which requires demonstration that a transaction is pro-competitive and as well as enhances competition. Indeed, our combined network will offer more option, more choice for both the intermodal and carload customers to pursue new opportunities, develop new market, and optimize their freight ROI. By working together as one integrated network and by combining the two teams talent and experience, we believe we will be able to deliver superior quality service, improve the costs our costs and the costs of our customers, and add to our competitive product service offering like retail door-to-door product, refrigerated Cargo Cool service, and domestic repositioning of overseas container. |
The CN-KCS combination will also provide our customers with more network access to seaport and river terminals and offer unmatched secure network and supply chain across all seasonal and weather condition. Together, we will provide these railroad customers with more network access, including an additional 22 Class 1 gateways, 5 ports and 10 barge terminal for KCS customers. This will allow us to connect to US industrial core to more core clusters than ever before and offer new and improved export option for our customers. |
We are also committed to making significant infrastructure investment in key communities up and down the railroad namely Illinois, Missouri, Michigan, Louisiana and Texas, which means more economic opportunities and more jobs. |
On page 7, our interaction with KCS over the last few weeks have given us high confidence in our previous estimate of $1 billion of EBITDA synergies. The revenue opportunity that could be achieved would makes us very excited about the potential of a CN-KCS combination for our customers and for our stakeholders. Were obviously still in early stage of exploring the full potential of this combination. However, our early discussion and due diligence with KCS have enabled us to identify additional opportunities beyond the original assessment, which was done purely on public available information. We have more cost opportunity and we have more revenue opportunity, we have more in total than what we had when we started. This combination is about growth and realizing new opportunity. It will lead to more choice for customers, a lower environmental footprint to truck conversion and the creation of more rail jobs than we have today. |
Page 8, the strategic environmental benefit of the CN and KCS combination were bringing to our customers and of the stakeholders but what couldnt be evident based on the outpouring of support we received. |
Since we first announced our proposal which was only on April 20, we have received over 1,000 letters of support of people who want us to be able to execute this transaction. This amount of significant this amount is significantly more than the number of support letters filed by the other bidder and then we received them in only half the time. |
A few key themes stand out from these letters, first, many recognized the inherent benefit that would result from the longer single-line service that a combination would provide as well as the value provided to our carload and intermodal shipper who would be able to expand their market reach. Second, theres a great enthusiasm for the prospect of creating a USMCA railroad that is more competitive than truck. Last, theres a strong appreciation for CNs willingness to work within the boards existing merger rules without seeking a waiver. |
Page 9 on Chicago. Unlike other railroads, we have a meaningful Chicago advantage. I would say its a very significant Chicago advantage particularly with respect to volume going through the eastern part of the network including Detroit, Toronto and Central Canada and East Coast port. We acquired EJ&E back in 2009 which is the only [indiscernible] (13:10) ever to be built in Chicago which allow us to bypass congestion in Chicago City Center corridor. |
By traveling around Chicago rather than the arc of the city, we are able to remove the risk of seasonal sometime crippling rail bottleneck and have fewer interchange. To put a real number to that the EJ&E saves CN on average between 24 to 36 hours of transit time around Chicago. And we keep the traffic outside the city. And other major benefit of the Chicago advantage is that by being able to move freight faster and more efficient in all direction, we are able to remove more than 300 truck per from the road for every additional freight train leading to a significant reduction in emission and incremental carbon capture. And thats especially true for the intermodal product that we want to move from Mexico City to Central Canada and Michigan. |
On page 10, we remain firmly committed to maintaining a strong balance sheet and an investment grade rating. Leave no doubt, historically, we have maintained our strongest credit rating in the sector due to varieties of factors including our strong balance sheet, disciplined capital allocation, strong free cash flow generation and adjusted debt to adjusted EBITDA of around 2 times going back to 1996. |
As a result of a combination with KCS, we would temporarily elevate our leverage to approximately 4.5 times, but we fully expect to continue to maintain our investment grade rating. Furthermore, we anticipate to quickly deliver to 3.3 times within the two years of the post-trust period. We already paused our share buyback. And during this time, we also expect to pause share repurchase. As leverage dropped to around 2.5 times to 3 times, we would then start to reevaluate the share buyback and there would be no change in the dividend policies during that period of time. |
So, Im going to ask Sean to talk about some of the issue related to the trust. And then Ill do the closing comment. Sean? |
Sean Finn |
Executive Vice-President-Corporate Services & Chief Legal Officer, Canadian National Railway Co. |
Yes. Thank you, JJ. Im on slide on page 11. And we are targeting to close a voting trust in the late 2021. In terms of next step, we are very focused on executing our merger agreement with KCS which we delivered to them last Thursday. Weve seen that last Thursday the KCS board determined that our proposal was superior and announced its intention to terminate its prior merger agreement and enter into a definitive merger agreement with us. |
Were very excited to move forward and execute our merger agreement later this week and by no later than Friday. |
The next milestone in closing with the KCS shareholders into the voting trust which we are targeting to occur in the second half of 2021. So voting trust will be established and we will fund it and close the KCS shareholders at the end of 2021. Working backwards, there are effectively three approvals that we are seeking. The first is to be need to approve CN voting trust. We are targeting early June for that approval. We filed a procedural schedule with the STB yesterday and petition them to approve the procedural schedule for us. |
The next the second approval will be a majority of KCS shareholders will need to approve the transaction. We are targeting a July shareholder vote with the KCS shareholders and their board for early July. Thirdly, the Mexican Competition Bureau known as COFECE and telecommunication regulator will need to approve the combination. We are not currently expecting them to raise the stature of concerns with the combination. Were aiming to get those approvals by second half of 2021. |
Importantly, CNs proposed transaction will not require a CN shareholder approval nor we require approvals by the Canadian regulators. Once we have all the required approvals, our target is to close it to the voting trust in the second half of 2021 and, ultimately, obtain STB approval for the combination in late 2022, early 2023. Thanks. JJ? |
Jean-Jacques Ruest |
President, Chief Executive Officer & Director, Canadian National Railway Co |
Thank you, Sean. To wrap up the prepared comments before we go back to the questions, were very excited about our future together with KCS. Its time to be bold and create the 21st century railroad. It will be a transformative combination to the benefit of both company shareholders, customers, and communities. KCS is the ideal partner for CN, offering highly complementary and strategic benefits for the combined company that will result in meaningful new product, more choices, real cost synergies, ESG-driven growth opportunity, and be the premier of Canada, US and Mexico railway network of the 21st century. With all that said, were focused on the KCS core operation in the meantime, as were seeing solid operating result and pricing, serving our customers and delivering our pro forma against our 2021 guidance. |
With that, we will start to join the group for the Q&A session. |
Fitz Middleton |
Analyst, Bank of America |
Great. Thank you, JJ. We do have a solid list of questions coming in. And thats more than were going to have time for. So, Im going to try bucket them into kind of broader buckets and hit on each of the themes and apologize to anyone if I dont get specifically to some of your details. | ||
QUESTION AND ANSWER SECTION | ||
Fitz Middleton
Analyst, Bank of America |
Q | |
So, JJ, one of the themes of the questions that has come in sort of has to do with your confidence around the approval, how you get that confidence level in light of the potential costs. I think people are seeing around CAD 1.7 billion and how youre walking through that and what gives you confidence to kind of push forward through the STB process? | ||
Jean-Jacques Ruest President, Chief Executive Officer & Director, Canadian National Railway Co. |
A | |
So, thank you for the question. I think confidence is on many, many front. One front is the value we offer to KCS shareholders, is definitely a superior in both financial value and also in our view in term of the risk. So, confidence that the KCS shareholders will support what their board decision of last week, which so far says [indiscernible] (19:22) with CN because of the superior value that we offer. | ||
But more broadly speaking, regarding the STB, its all about creating public benefit and the [audio gap] (19:31) how much synergies can we create. How much what can we do for the US port for them to be more successful in the heartland of North America, what can we do for the USMCA to be more successful? What can we do for all buyers and shippers to be connected in a way that we can create a more cost-effective supply chain, more reliable supply chain, more secured supply chain, and a supply chain that creates more choice, pro-competitive choice under the new rule, not the old rule which dont allow for enhanced competition but a new rule. | ||
So, I think as we make the case to the STB and weve only been at it now for five weeks, as we make the case step by step and answer that question and make the case, as well as getting even more level of support from those who are using the network in North America, the public benefit will become obvious and we will secure the voting trust, and ultimately, we will secure the transaction from the STB and the longer version, the pro-competitive version and, of course, with the condition required for a merger of this size to be approved. | ||
So, our confidence comes in from the business case itself which is compelling, which is pro-competitive and its coming at a time where North America does need a premiere railroad, North-South railroad, Continental railroad, that would fit some of the economic needs ahead of us. I dont know, Sean, if you want to talk. Thats really from an economic point of view that speaks to creating value. Maybe, Sean, you want to talk specifically on the sort of the more legalistic process of the STB. | ||
Sean Finn Executive Vice-President-Corporate Services & Chief Legal Officer, Canadian National Railway Co. |
A | |
Yeah. As you saw, we have petitioned the STB from the outset to apply the current rules, referred to often as the new rules to this transaction on the basis that we thought that was the right thing to do under the current circumstances and that was, obviously, confirmed by the STB in the decision on Monday where they recognized that we had asked that it had been applied the new rules, the current rules. We think that the support weve received from customers, shippers, our various stakeholders takes to the account the fact that weve proactively made that decision to proceed under the current rules. We thought there was more in line with the current environment than the current state of affairs of both railways. But also very confident that we can, through post-closing the voting trust with the STB and stakeholders make a case for enhanced competition. |
Sean Finn Executive Vice-President-Corporate Services & Chief Legal Officer, Canadian National Railway Co. |
Thank you. Bye-bye |
Disclaimer
The information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete or error-free statement or summary of the available data. As such, we do not warrant, endorse or guarantee the completeness, accuracy, integrity, or timeliness of the information. You must evaluate, and bear all risks associated with, the use of any information provided hereunder, including any reliance on the accuracy, completeness, safety or usefulness of such information. This information is not intended to be used as the primary basis of investment decisions. It should not be construed as advice designed to meet the particular investment needs of any investor. This report is published solely for information purposes, and is not to be construed as financial or other advice or as an offer to sell or the solicitation of an offer to buy any security in any state where such an offer or solicitation would be illegal. Any information expressed herein on this date is subject to change without notice. Any opinions or assertions contained in this information do not represent the opinions or beliefs of FactSet CallStreet, LLC. FactSet CallStreet, LLC, or one or more of its employees, including the writer of this report, may have a position in any of the securities discussed herein.
THE INFORMATION PROVIDED TO YOU HEREUNDER IS PROVIDED AS IS, AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, FactSet CallStreet, LLC AND ITS LICENSORS, BUSINESS ASSOCIATES AND SUPPLIERS DISCLAIM ALL WARRANTIES WITH RESPECT TO THE SAME, EXPRESS, IMPLIED AND STATUTORY, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY, COMPLETENESS, AND NON-INFRINGEMENT. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, NEITHER FACTSET CALLSTREET, LLC NOR ITS OFFICERS, MEMBERS, DIRECTORS, PARTNERS, AFFILIATES, BUSINESS ASSOCIATES, LICENSORS OR SUPPLIERS WILL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOST PROFITS OR REVENUES, GOODWILL, WORK STOPPAGE, SECURITY BREACHES, VIRUSES, COMPUTER FAILURE OR MALFUNCTION, USE, DATA OR OTHER INTANGIBLE LOSSES OR COMMERCIAL DAMAGES, EVEN IF ANY OF SUCH PARTIES IS ADVISED OF THE POSSIBILITY OF SUCH LOSSES, ARISING UNDER OR IN CONNECTION WITH THE INFORMATION PROVIDED HEREIN OR ANY OTHER SUBJECT MATTER HEREOF.
The contents and appearance of this report are Copyrighted FactSet CallStreet, LLC 2021 CallStreet and FactSet CallStreet, LLC are trademarks and service marks of FactSet CallStreet, LLC. All other trademarks mentioned are trademarks of their respective companies. All rights reserved.
CN Note: Transcript provided by FactSet CallStreet, LLC has been edited for misspellings and other inaccuracies.
Forward Looking Statements
Certain statements included in this communication constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws, including statements based on managements assessment and assumptions and publicly available information with respect to KCS, regarding the proposed transaction between CN and KCS, the expected benefits and synergies of the proposed transaction, future opportunities for the combined company and future shareholder returns. By their nature, forward-looking statements involve risks, uncertainties and assumptions. CN cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although reasonable at the time they were made, subject to greater uncertainty. Forward-looking statements may be identified by the use of terminology such as believes, expects, anticipates, assumes, outlook, plans, targets, or other similar words.
Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors which may cause actual results, performance or achievements of CN, or the combined company, to be materially different from the outlook or any future results, performance or achievements implied by such statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements. Important risk factors that could affect the forward-looking statements in this communication include, but are not limited to: the outcome of any possible transaction between CN and KCS, including the possibility that a transaction will not be agreed to or that the terms of any definitive agreement will be materially different from those described; the parties ability to consummate the proposed transaction; the conditions to the completion of the proposed transaction; that the regulatory approvals required for the proposed transaction may not be obtained on the terms expected or on the anticipated schedule or at all; CNs indebtedness, including the substantial indebtedness CN expects to incur and assume in connection with the proposed transaction and the need to generate sufficient cash flows to service and repay such debt; CNs ability to meet expectations regarding the timing, completion and accounting and tax treatments of the proposed transaction; the possibility that CN may be unable to achieve expected synergies and operating efficiencies within the expected time-frames or at all and to successfully integrate KCS operations with those of CN; that such integration may be more difficult, time-consuming or costly than expected; that operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers or suppliers) may be greater than expected following the proposed transaction or the public announcement of the proposed transaction; the retention of certain key employees of KCS may be difficult; the duration and effects of the COVID-19 pandemic, general economic and business conditions, particularly in the context of the COVID-19 pandemic; industry competition; inflation, currency and interest rate fluctuations; changes in fuel prices; legislative and/or regulatory developments; compliance with environmental laws and regulations; actions by regulators; the adverse impact of any termination or revocation by the Mexican government of Kansas City Southern de México, S.A. de C.V.s Concession; increases in maintenance and operating costs; security threats; reliance on technology and related cybersecurity risk; trade restrictions or other changes to international trade arrangements; transportation of hazardous materials; various events which could disrupt operations, including illegal blockades of rail networks, and natural events such as severe weather, droughts, fires, floods and earthquakes; climate change; labor negotiations and disruptions; environmental claims; uncertainties of investigations, proceedings or other types of claims and litigation; risks and liabilities arising from derailments; timing and completion of capital programs; and other risks detailed from time to time in reports filed by CN with securities regulators in Canada and the United States. Reference should also be made to Managements Discussion and Analysis in CNs annual and interim reports, Annual Information Form and Form 40-F, filed with Canadian and U.S. securities regulators and available on CNs website, for a description of major risk factors relating to CN.
Forward-looking statements reflect information as of the date on which they are made. CN assumes no obligation to update or revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable securities laws. In the event CN does update any forward-looking statement, no inference should be made that CN will make additional updates with respect to that statement, related matters, or any other forward-looking statement.
No Offer or Solicitation
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Additional Information and Where to Find It
This communication relates to a proposal which CN has made for an acquisition of KCS. In furtherance of this proposal and subject to future developments, CN (and, if a negotiated transaction is agreed, KCS) may file one or more registration statements, proxy statements, tender offer statements or other documents with the U.S. Securities and Exchange Commission (SEC) or applicable securities regulators in Canada. This communication is not a substitute for any proxy statement, registration statement, tender offer statement, prospectus or other document CN and/or KCS may file with the SEC or applicable securities regulators in Canada in connection with the proposed transactions.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT(S), REGISTRATION STATEMENT(S), TENDER OFFER STATEMENT, PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC OR APPLICABLE SECURITIES REGULATORS IN CANADA CAREFULLY IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT CN, KCS AND THE PROPOSED TRANSACTIONS. Any definitive proxy statement(s), registration statement or prospectus(es) and other documents filed by CN and KCS (if and when available) will be mailed to stockholders of CN and/or KCS, as applicable. Investors and security holders will be able to obtain copies of these documents (if and when available) and other documents filed with the SEC and applicable securities regulators in Canada by CN free of charge through at www.sec.gov and www.sedar.com. Copies of the documents filed by CN (if and when available) will also be made available free of charge by accessing CNs website at www.CN.ca.
Participants
This communication is neither a solicitation of a proxy nor a substitute for any proxy statement or other filings that may be made with the SEC and applicable securities regulators in Canada. Nonetheless, CN and its directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transactions. Information about CNs executive officers and directors is available in its 2021 Management Information Circular, dated March 9, 2021, as well as its 2020 Annual Report on Form 40-F filed with the SEC on February 1, 2021, in each case available on its website at www.CN.ca/investors/ and at www.sec.gov and www.sedar.com. Additional information regarding the interests of such potential participants will be included in one or more registration statements, proxy statements, tender offer statements or other documents filed with the SEC and applicable securities regulators in Canada if and when they become available. These documents (if and when available) may be obtained free of charge from the SECs website at www.sec.gov and www.sedar.com, as applicable.
1 Year Kansas City Southern Chart |
1 Month Kansas City Southern Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions