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CP 2Canadian Pacific Railway Limited yesterday announced that it has completed negotiations of a proposed merger agreement with Kansas City Southern ("KCS"), which the KCS Board of Directors has deemed a "Company Superior Proposal."

CP stands ready to execute a definitive merger agreement to create the first U.S.-Mexico-Canada railway to enhance competition in the North American rail network.

"We are pleased to reach this important milestone and again pursue this once-in-a-lifetime partnership," said Keith Creel, CP President and CEO. "As we have said throughout this process, CP remains committed to everything this opportunity presents. This merger proposal provides KCS stockholders greater regulatory and value certainty. We are excited to move forward as we work toward making this perfect match a reality."

The merger proposal values KCS at $300 per share, representing a 34% premium[1], based on the CP closing price on August 9, 2021 and KCS unaffected closing price on March 19, 2021. Following the closing into a voting trust, common shareholders of KCS will receive 2.884 CP common shares and $90 in cash for each share of KCS common stock held. The proposed transaction includes the assumption of $3.8 billion of outstanding KCS debt.

KCS has notified CN that it intends to terminate KCS's merger agreement with CN and enter into the definitive agreement with CP. Under the terms of the CN-KCS merger agreement, CN has five business days to negotiate amendments to the CN-KCS merger agreement and the KCS board has that time to determine whether any such amendments would cause the CP agreement to no longer constitute a "Company Superior Proposal."

A CP-KCS combination would create more competition – not less – in the freight rail industry and would be better for Amtrak. It brings more competition among railways and protects obligations to passenger service.

A CP-KCS combination: Creates single-line routes to all the markets that a CN-KCS network would reach; Brings new competition to and from Upper Midwest markets dominated by BNSF or UP that CN-KCS cannot address; Creates new competition versus CN that CN-KCS combination actually eliminates; Has a route network that does not funnel all of its traffic through the congested Chicago area; Unlocks new capacity for Amtrak passenger service, rather than interfering with passenger service between Baton Rouge and New Orleans and south of Chicago; CP-KCS would enhance competition, create new and stronger competitive single-line options against existing single-line routes while taking trucks off the highway. CP-KCS would maintain all existing freight rail gateways and maintain competition in the Baton Rouge to New Orleans corridor, while creating new north-south lanes between Western Canada, the Upper Midwest and the Gulf Coast and Mexico.

A CP-KCS transaction would diminish the pressure for downstream consolidation by preserving the basic six-railroad structure of the North American rail network: two in the west, two in the east and two in Canada, each with access to the U.S. Gulf Coast. By contrast, a CN-KCS transaction would fundamentally disrupt this balance.