CALGARY, ALBERTA, CANADA — Describing rival Canadian National’s (CN) unsolicited bid to purchase US railroad Kansas City Southern (KCS) as “not a real deal,” Keith Creel, chief executive officer of Canadian Pacific Railway (CP), said CP will not raise its initial bid for KCS.

CN on April 20 offered to buy KCS in a $33.7 billion deal that was significantly higher than CP’s $25 billion bid earlier this month.

In a first-quarter earnings conference call with industry analysts on April 21, Creel said CN’s offer was “illusory and inferior because it creates adverse competitive impacts and raises other serious public interest concerns. CN’s proposal increases regulatory and anti-trust risk for KCS shareholders and decreases benefits for customers, employees and other stakeholders.”

Creel said a CP-KCS merger would be the only possible Class 1 rail carrier combination that would answer the Surface Transportation Board’s “public interest test.”

“The only, not one of many, the only,” Creel said. “Why do we say that? Why is that true? Why is that undeniable? Well, No. 1, let’s start with the truth. No. 2, it’s just pro-competitive. Multiple fronts, new routes, new markets, new competition introduced. Customers get reached today with this combination, when approved and we believe it will be, that quite frankly without it is impossible.”

Creel, who earlier in his career was chief operating officer at CN, emphasized that CP has no intention of getting into a bidding war with its rival.

“I just frankly don’t believe that the right value proposition for our shareholders is to put our balance sheet at risk, to use all of our capacity in our power to take our ability to respond with shocks to the market,” he said.

Earlier this week, Robert Pace, chairman of the board of directors at CN, said CN’s bid 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.”

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, whose southbound tracks stop at Kansas City, has little overlap with KCS, giving its bid a potentially smoother path through the STB than the offer from larger CN, whose network extends to the Gulf of Mexico.

During the conference call, CP also unveiled its first-quarter financial results. The company posted a 47% increase in first-quarter profit, boosted by a strong performance in its automotive and Canadian grain segments.

Grain volumes were up 19% on the quarter, with revenues up 9%.

“Every month this quarter in Q1 was a record in Canadian grain for us, marking it as six straight record quarters,” said John Kenneth Brooks, executive vice president and chief marketing officer at CP. “I’m incredibly proud of our operating team across the entire network and our partners in the grain supply chain that helped us execute and deliver this exceptional performance.”

CP’s revenue declined 3.9% while net income rose to C$602 million, or C$4.50 per share, in the first quarter ended March 31, compared with C$409 million, or C$2.98 per share, in the first quarter of 2020.

The company’s operating ratio, a measure of operating expenses as a percentage of revenue, rose to 60.2% from 59.2% a year earlier. A lower operating ratio signals improved profitability.

“We finished the quarter extremely strong and have brought a lot of momentum into Q2,” said Nadeem Velani, executive vice president and chief financial officer of CP. “The demand environment is set up well.”