MONTREAL, QUEBEC, CANADA — It appears that interest in connecting ports and railways in the United States, Canada and Mexico is strong.

Less than a month after Canadian Pacific Railway announced it has agreed to purchase the Kansas City Southern railroad in a transaction valued at $29 billion, Canadian National Railway Co. on April 20 stepped forward with what it deemed “a superior proposal” to acquire KCS in a transaction valued at $33.7 billion.

“CN is ideally positioned to combine with KCS to create a company with broader reach and greater scale, and to seamlessly connect more customers to rail hubs and ports in the US, Mexico and Canada,” said JJ Ruest, president and chief executive officer of CN. “CN and KCS have highly complementary networks with limited overlap that will enable them to accelerate growth in single-owner, single-operator, end-to-end service across North America. With safer service and better fuel efficiency on key routes from Mexico through the heartland of America, the result will be a safer, faster, cleaner and stronger railway.”

Robert Pace, chairman of the board of directors at CN, said CN’s offer for KCS “offers superior financial value over the immediate and long term, a more complementary strategic fit, greater choice and efficiencies for customers and enhanced benefits for employees and local communities. We look forward to engaging constructively with KCS’ board and all relevant stakeholders to deliver this superior transaction.”

Under the terms of CN’s proposal, KCS shareholders will receive $200 in cash and 1.059 shares of CN common stock for each KCS common share. Based on the April 19 closing price of CN shares, CN’s proposal is valued at $325 per KCS share. This represents an implied premium of 45% when compared with KCS’ unaffected closing stock price on March 19 and a 21% improvement over the current value of KCS’ agreement with CP.

CN said it estimates that a combination with KCS would result in EBITDA synergies approaching $1 billion annually, with the vast majority of synergies coming from additional revenue opportunities. In addition, CN said it expects any transaction to be accretive to CN’s adjusted diluted earnings per share in the first full year following CN assuming control of KCS.

Additionally, in an April 20 letter to the KCS board of directors, CN laid out the benefits of a potential merger between the two rail companies.

“We expect the combination to expand the total addressable markets by approximately $8 billion across the Canadian trans-border, the US domestic, and the rapidly-growing Mexico-US markets,” Ruest said. “The combined network and the deployment of CN’s innovative, advanced technologies will produce unparalleled stakeholder benefits.

“We intend to add more fluid, rapid and cost efficient options across network points like Laredo, Michigan, Southern Ontario and Detroit, for both new and existing customers. The expanded market opportunity and improved network efficiency is expected to generate strong and high-quality new revenues for the combined company primarily by converting trucking shipping volumes onto rail.

“CN and KCS have highly complementary networks with minimal overlap. Customers of both companies will benefit from faster, more direct and more efficient service for North-South trade. CN and KCS will have a robust network of end-to-end single-line services from Mexico to Canada, with an enhanced ability to connect ports in the Atlantic, Pacific and the Gulf of Mexico. The combined company will be the premier service-competitive railway to Michigan and Eastern Canada, resulting in better efficiency both in terms of fuel and customer service.”

The KCS board of directors said it will evaluate CN’s proposal in accordance with the terms of its merger agreement with CP, and will respond in due course. CP, meanwhile, called CN’s proposal “massively complex and likely to fail.”

“The Canadian National proposal would create the third largest Class 1 railroad and destabilize the competitive balance in the North American rail industry,” CP said. “The only combination involving KCS that is clearly in the public interest is the one that Canadian Pacific has proposed, which has already garnered support from over 400 shippers and other stakeholders. While remaining the smallest of the six US Class 1 railroads by revenue, a combination between CP and KCS creates stronger single-line competition against existing Class 1 routes.”

CP also said CN’s proposal would reduce competition and negatively impact shippers while pointing out what it perceives as CN’s history of “over promising and underdelivering.”

“The Canadian National management team has significantly underperformed over a decade and has a track record of underdelivering against its own projections,” CP said.

Plans appear to be moving ahead on the combined rail company, to be named Canadian Pacific Kansas City (CPKS). CPKS is expected to generate greater competition as it expands to 20,000 miles of rail and 20,000 employees. With expected revenues of about $8.7 billion, the merged rail network will remain the smallest of six Class 1 railroads.

Over the past several weeks, customers, ports, transloads and other stakeholders have filed statements with the Surface Transportation Board in support of CP’s acquisition of KCS.

An STB review is expected to be completed by mid-2022.

The roots of the first US-Mexico-Canada rail network extend to KCS’s 1995 partnership with Latin America’s largest integrated transportation company, Transportacion Maritima Mexicana SA de CV, Mexico City. KCS, then a 2,900-mile north-south regional railroad serving the Gulf coast and the US Midwest, sharply outbid Union Pacific for the right to buy 49% of the Texas-Mexican Railway, a 160-mile line that extended from Corpus Christi, Texas, US, to Laredo, a major US-Mexico truck and rail gateway.

The eastern Texas rail link with the Texas-Mexican Railway allowed KCS to take advantage of the 1994 North American Free Trade Agreement and established the Kansas City Southern as a major rail carrier between Kansas City and Mexico.

KCS continued to expand its US and Mexico network through marketing and access agreements through the 1990s, including a 1998 investment in the Panama Canal Railway Co. (PCRC).

KCS partnered with Grupo TMM, winning Mexico’s Northeast Line rail concession in 1996, which allowed the formation of Transportacion Ferroviaria Mexicana, SA de CV in 1997. KCS became a majority owner when it bought Grupo’s shares in 2004, and full owner upon purchase of the remaining 20% in 2005.

Those maneuvers gave KCS key access to the Mexican market, but rails and equipment in that country and Latin America required serious upgrades. To fund them, KCS spun off all business interests that were not essential to rail, paid off recent acquisitions, and began making capital improvements. Among them were upgrades to allow PCRC tracks to handle large, intermodal shipping containers and passenger trains.