You can enable subtitles (captions) in the video player
The fiercest takeover battle of 2021 took place in a sector that hadn't seen a major deal in over 20 years, the railroad industry. And just like in the board game Monopoly, it immediately became clear why owning more railroads is such an attractive prospect.
The saga began in March when Canadian Pacific agreed to buy smaller rival Kansas City Southern for $28.9bn including debt. The transaction would allow Canadian Pacific to form a 20,000 mile network that stretched across North America to create the first US, Mexico, Canada railroad. But Canadian National, a larger rival to the two smallest players of the so-called class one rail operators in the region, had other plans.
In April, it gatecrashed Canadian Pacific's bid with a $34bn offer to buy Kansas City Southern. By May, it had convinced the board of the US company to back its offer, but all was not well for Canadian National behind the scenes. Trouble emerged soon after when one of its major shareholders, the UK activist investor Christopher Hohn of TCI, warned it to drop its plans or face a shareholder revolt.
Hohn, who also happen to be a big shareholder in Canadian Pacific, believed US regulators at the Surface Transportation Board would take issue with a voting trust that Canadian National plan to use for its deal. Voting trusts are vehicles that allow a buyer of an asset to immediately pay the shareholders of the target company even while regulators investigate the merger proposal.
During this process, the companies seeking to merge continued to be operated independently. The STB had already told Canadian National that they would take a harder line on their voting trust plans using a stricter criteria than what they plan to apply to Canadian Pacific. Hohn said if Canadian National pressed ahead and failed he would seek the immediate resignation of its chief executive.
By the end of August the STB rejected Canadian Nationals voting trust request, spooking its shareholders. By then, Canadian Pacific had already returned to the table with a fresh $31bn takeover offer. By mid-September, Kansas City Southern agreed to a deal with Canadian Pacific as it prevailed in the takeover battle.
And in October, Canadian National said chief executive Jean-Jacques Ruest who failed to clinch the deal would leave the company within a few months. The saga showed that unlike in Monopoly, he who has the most cash doesn't always win.