US railroad KCS to merge with CP, end CN deal
US railroad Kansas City Southern (KCS) is swapping merger partners again, replacing its planned $33.6bn combination with Canadian National (CN) for a $31bn deal with original suitor Canadian Pacific (CP), to create a single railroad stretching from Canada to Mexico.
KCS said today its board of directors has determined that CP's latest offer is "superior" to its merger agreement with CN.
CN is evaluating its options and "will make carefully considered decisions in the interests of all CN shareholders and stakeholders and in line with our strategic priorities," the railroad told Argus today.
The merger battle began on 21 March when KCS announced a plan to merge with CP in a $29bn deal. CN made two counteroffers, eventually increasing its proposal to $33.6bn and securing KCS' agreement.
CP has always maintained it would eventually end up merging with KCS, since unlike CN its railroad network does not overlap with that of KCS. CN and KCS' rail networks overlapped in a number of places, raising the risk of costly and lengthy negotiations to resolve rail competition issues.
CP is excited to move forward and "remains committed to everything this opportunity presents," CP chief executive Keith Creel said today.
CP made a $31bn counteroffer on 10 August, but KCS at the time said it did not meet the terms of a superior proposal that would let the CN deal be overturned. But CP reiterated that same proposal on 31 August, and KCS on 4 September said CP's offer might be a superior proposal.
US rail regulator the Surface Transportation Board dealt what appears to have been a fatal blow to CN's merger plans when it turned down CN's request to use a voting trust to purchase and hold KCS while the agency reviewed the merger application.
CN had chosen to abide by legally untested merger rules put in place in 2001 that require the public will benefit from a trust arrangement. STB determined CP's proposed voting trust did not demonstrate enough public benefits.
STB has already approved CP's plan to use a voting trust, using older STB merger rules that do not put as much emphasis on public benefits. Confident it would win KCS in the end, CP had sought STB approval of its trust, even though KCS had switched to merge with CN.
KCS has until 5pm EDT on 20 September to officially accept CP's offer. The deal is still subject to approval of CP and KCS shareholders, as well as the STB and other regulators.
CP expects to complete the merger during the second half of 2022.
Related news posts
US regulator slams executive over Opec 'collusion'
US regulator slams executive over Opec 'collusion'
Washington, 2 May (Argus) — US antitrust regulators for the first time took action against a leading US oil executive over his alleged "collusion" with Opec, but the producers' alliance itself was not a target of investigation. The Federal Trade Commission (FTC) today issued a proposed consent order barring former Pioneer Natural Resources chief executive Scott Sheffield from joining the board of ExxonMobil following its $59.5bn takeover of Pioneer. FTC accused Sheffield of organizing "anti-competitive coordinated output reductions between and among US crude oil producers" and members of Opec and the broader Opec+ alliance. "Opec and Opec+ are cartels that exist to control global crude oil production and reserves," FTC said. The specific charges against Sheffield relate to the outspoken executive's frequent public appearances where he opined on US companies' desired production levels, his meetings and frequent communications with Opec officials since 2017 and his advocacy of drastic production cuts by US companies as global demand fell sharply at the beginning of the Covid-19 pandemic in 2020. Opec under then secretary general Mohammed Barkindo began active outreach to independent US producers, starting in March 2017 with private dinner discussions held on the sidelines of IHS CERAWeek conferences in Houston, Texas. Barkindo hosted similar discussions at CERAWeek in 2018 and 2019, in addition to hosting some of the US companies' chief executives at Opec seminars in Vienna. FTC references Sheffield's public comments following those meetings and alleges that Sheffield kept in frequent touch with Opec officials via messaging service WhatsApp and other means to discuss production levels and prices. Barkindo at the time said that production cuts and prices were never on the agenda of his meetings with the US shale producers and that his organization wanted to better understand the US companies' technological innovation and to compare market outlooks and forecast models. Barkindo in the same time frame held similar discussions with major US hedge funds and money managers. US oil executives polled by Argus in 2017-20 also said that their discussions with Barkindo and other Opec officials revolved around market fundamentals. The US oil industry broadly felt that it was benefiting from a policy of production cuts Opec was implementing as it supported prices at a time when the US domestic production and crude exports grew uninterrupted. Former president Donald Trump took credit for engineering a breakthrough agreement in April 2020 to remove more than 10mn b/d of global crude supply by brokering an agreement between Saudi Arabia, Russia and other Opec+ producers. Even without prodding from Trump, US producers cut back production cuts in 2020 as transportation fuel demand and prices fell sharply in the first months of the pandemic. FTC singled out Sheffield for allegedly coordinating his company's production levels with Opec. Sheffield "held repeated, private conversations with high-ranking Opec representatives assuring them that Pioneer and its Permian basin rivals were working hard to keep oil output artificially low," according to the FTC order. Sheffield, who helped found Pioneer and was its longtime chairman, served as chief executive from 1997 to 2016 and from 2019 through 2023. He remains on the company's board, serving as special adviser to the chief executive since 1 January. The son of an oil executive, Sheffield attended high school in Tehran, Iran. Pioneer shrugged off what it termed a "fundamental misunderstanding" of global oil markets and said that FTC misread "the nature and intent" of Sheffield's actions. Opec declined to comment on FTC's action against Sheffield. FTC is so far the only US regulator to set sights on Opec, even if indirectly. President Joe Biden in 2021 separately tasked FTC with leading an investigation into whether there is price manipulation in gasoline markets. Biden, like many of his predecessors at a time of high gasoline prices, in 2022 accused Opec of uncompetitive behavior in oil markets and expressed support for US legislation allowing antitrust action against the organization by the US Department of Justice. But that acrimony has largely dissipated after global oil and US gasoline prices fell in 2023 from unusually high levels in the previous year. US Congress has not taken significant steps to advance the anti-Opec legislation since 2022. By Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Canadian rail workers vote to launch strike: Correction
Canadian rail workers vote to launch strike: Correction
Corrects movement of grain loadings from a year earlier in final paragraph. Washington, 2 May (Argus) — Workers at the two major Canadian railroads could go on strike as soon as 22 May now that members of the Teamsters Canada Rail Conference (TCRC) have authorized a strike, potentially causing widespread disruption to shipments of commodities such as crude, coal and grain. A strike could disrupt rail traffic not only in Canada but also in the US and Mexico because trains would not be able to leave, nor could shipments enter into Canada. This labor action could be far more impactful than recent strikes because it would affect Canadian National (CN) and Canadian Pacific Kansas City (CPKC) at the same time. Union members at Canadian railroads have gone on strike individually in the past, which has left one of the two carriers to continue operating and handle some of their competitor's freight. But TCRC members completed a vote yesterday about whether to initiate a strike action at each carrier. The union represents about 9,300 workers employed at the two railroads. Roughly 98pc of union members that participated voted in favor of a strike beginning as early as 22 May, the union said. The union said talks are at an impasse. "After six months of negotiations with both companies, we are no closer to reaching a settlement than when we first began, TCRC president Paul Boucher said. Boucher warned that "a simultaneous work stoppage at both CN and CPKC would disrupt supply chains on a scale Canada has likely never experienced." He added that the union does not want to provoke a rail crisis and wants to avoid a work stoppage. The union has argued that the railroads' proposals would harm safety practices. It has also sought an improved work-life balance. But CN and CPKC said the union continues to reject their proposals. CPKC "is committed to negotiating in good faith and responding to our employees' desire for higher pay and improved work-life balance, while respecting the best interests of all our railroaders, their families, our customers, and the North American economy." CN said it wants a contract that addresses the work life balance and productivity, benefiting the company and employees. But even when CN "proposed a solution that would not touch duty-rest rules, the union has rejected it," the railroad said. Canadian commodity volume has fallen this year with only rail shipments of chemicals, petroleum and petroleum products, and non-metallic minerals rising, Association of American Railroads (AAR) data show. Volume data includes cars loaded in the US by Canadian carriers. Coal traffic dropped by 11pc during the 17 weeks ended on 27 April compared with a year earlier, AAR data show. Loadings of motor vehicles and parts have fallen by 5.2pc. CN and CPKC grain loadings fell by 4.3pc from a year earlier, while shipment of farm products and food fell by 9.3pc. By Abby Caplan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
FTC clears Exxon-Pioneer deal but bars Sheffield
FTC clears Exxon-Pioneer deal but bars Sheffield
New York, 2 May (Argus) — US antitrust regulators signaled they will clear ExxonMobil's proposed $59.5bn takeover of Pioneer Natural Resources but banned the shale giant's former chief executive officer from gaining a seat on the board. A proposed consent order from the Federal Trade Commission seeks to stop Scott Sheffield, Pioneer's former chief executive, from taking part in "collusive activity" that would potentially raise crude prices and cause US consumers to pay more at the pump. The order paves the way for ExxonMobil to close its blockbuster deal for Pioneer, which will make it the leading producer in the prolific Permian shale basin of west Texas and southeastern New Mexico. It is also the top US oil producer's biggest transaction since Exxon's 1999 merger with Mobil. ExxonMobil's Permian output will more than double to 1.3mn b/d of oil equivalent (boe/d) when the acquisition closes, before increasing to about 2mn boe/d in 2027. The FTC, which has taken a tougher line on mergers under the administration of President Joe Biden, has paid close attention to oil deals announced during the latest phase of shale consolidation. Only this week, Diamondback Energy said it had received a second request for information from the regulator over its $26bn proposed takeover of Endeavor Energy Resources. And Chevron's planned $53bn acquisition of US independent Hess has also been held up. The FTC alleged in a complaint that Sheffield exchanged hundreds of text messages with Opec officials discussing crude pricing and output, and that he sought to align production across the Permian with the cartel. His past conduct "makes it crystal clear that he should be nowhere near Exxon's boardroom," said Kyle Mach, deputy director of the FTC's Bureau of Competition. ExxonMobil said it learnt about the allegations against Sheffield from the FTC. "They are entirely inconsistent with how we do business," the company said. While Pioneer said it disagreed with the FTC's complaint, which reflects a "fundamental misunderstanding" of US and global oil markets and "misreads the nature and intent" of Sheffield's actions, the company said it would not be taking any steps to stop the merger from closing. By Stephen Cunningham Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Abu Dhabi’s Adnoc puts crude capacity at 4.85mn b/d
Abu Dhabi’s Adnoc puts crude capacity at 4.85mn b/d
Dubai, 2 May (Argus) — Abu Dhabi's state-owned Adnoc has nudged up its self-reported crude production capacity to 4.85mn b/d, from 4.65mn b/d previously. The UAE state energy giant did not formally announce the increase but updated the figure on its website. It did something similar when its capacity reached 4.65mn b/d in late 2023, up from 4.5mn b/d in the middle of last year. This latest hike takes the company a step closer to its long-term 5mn b/d crude capacity target, which it aims to reach by 2027. Adnoc set the 5mn b/d target back in 2018 when its capacity was 3.5mn b/d. At that time, the company said it was aiming to deliver the increase by 2030, but in November 2022 it brought the timeframe forward by three years, citing the "UAE's robust hydrocarbon reserves". The change in timeline had been expected, with sources telling Argus earlier that year that discussions had been taking place in the upper echelons of Adnoc about significantly accelerating its capacity growth plans . Given the speed at which the company has been delivering capacity gains over the past few years, and how close it is to meeting its target already, it is not inconceivable that Adnoc will reach 5mn b/d ahead of schedule. Put your best foot forward The UAE's rising capacity comes as Opec+ producers engage with independent agencies to update their respective crude output capacities for use in production policy decisions from 2025. At their meeting in June last year, all Opec+ members committed to undergo an external assessment of their sustainable capacities in the first half of 2024 by three independent consultancies, IHS, Wood Mackenzie and Rystad. The updated capacity assessment will help address a key criticism of the Opec+ production restraint agreements in their current format, namely that many of the countries involved have been cutting output from a baseline level of production that they can no longer actually deliver, in most cases due to natural decline. The UAE has been one of a handful of countries in the group that has been raising its capacity over the past few years. This means it should, in theory, benefit from the latest assessment, as a higher accepted capacity will afford it a higher production baseline under any Opec+ agreements struck from 2025 onwards. By Nader Itayim Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more