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CP 2Canadian Pacific Railway Limited (TSX: CP, NYSE: CP) ("CP") yesterday said it is ready to re-engage with the Kansas City Board of Directors following its determination that CP's revised offer can reasonably be expected to lead to a "Company Superior Proposal."

"We look forward to re-engaging with the KCS Board of Directors to advance this unique and achievable Class 1 combination that provides compelling short- and long-term value," said Keith Creel, CP President and CEO. "CP-KCS is the only truly end-to-end Class 1 merger that preserves and enhances competition. It is the perfect combination and we are ready to go to work to unlock this unique opportunity, creating something special for the rail industry and for commerce in North America."

CP this week reaffirmed its offer originally submitted Aug. 10 and resubmitted Aug. 31 to combine with KCS, which recognizes the premium value of KCS while providing regulatory certainty. CP believes it ought to be deemed a superior proposal and has placed a deadline of Sept. 12 on that offer.

The proposed transaction 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.

On Aug. 31, the Surface Transportation Board ("STB") unanimously rejected CN and KCS's joint motion for approval for use of a voting trust. That clearly shows that the CN-KCS merger proposal is illusory and not achievable.

Importantly, the STB has already approved CP's use of a voting trust and affirmed CP-KCS's waiver from the new rail merger rules it adopted in 2001 because a CP-KCS combination is truly end-to-end, and pro-competitive.

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 offers all the same benefits – and more – to rail shippers and the supply chain with none of CN-KCS' harms or need to enforce promises through regulation. 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 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.

CP is willing to host intercity passenger rail service between New Orleans and Baton Rouge, an outcome with far more operational flexibility and less risk to Louisiana taxpayers. CP has consistently received an A rating from Amtrak, leading the industry for the previous five years-plus, in its annual host railroad report card recognizing its industry-leading on-time performance record. CP is also the first Class 1 railroad to complete 100 percent certification of its Amtrak schedules.

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.