Canadian Pacific Railway Limited and Kansas City Southern yesterday announced they have entered into a merger agreement, under which CP has agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately USD$31 billion which includes the assumption of $3.8 billion of outstanding KCS debt.
The merger creates the first U.S.-Canada-Mexico railway. The decision follows last Sunday’s announcement that the KCS board found CP’s revised proposal “superior” to the CN offer of US$ 30 billion.
The latter’s offer began to unravel after the Surface Transportation Board (STB) last month rejected CN’s proposal for a voting trust. CP’s proposal for a voting trust had already been approved due to fewer competitive concerns. The final ruling by the STB on the giant merger is not expected before the second half of 2022.
The transaction, which has the unanimous support of both boards of directors, values KCS at $300 per share, representing a 34 percent premium, based on the CP closing price on Aug. 9, 2021, the date prior to which CP submitted a revised offer to acquire KCS, and KCS’ unaffected closing price on March 19, 2021.
« Our path to this historic agreement only reinforces our conviction in this once-in-a-lifetime partnership, » said CP President and Chief Executive Officer Keith Creel. « We are excited to get to work bringing these two railroads together. By combining, we will unlock the full potential of our networks and our people while providing industry-best service for our customers. This perfect end-to-end combination creates the first U.S.-Mexico-Canada rail network with new single-line offerings that will deliver dramatically expanded market reach for CP and KCS customers, provide new competitive transportation options, and support North American economic growth. »
« We are glad to be partnering with CP to create a railroad that is able to compete by providing the best value for the transportation dollar, » said KCS President and Chief Executive Officer Patrick J. Ottensmeyer. « The CP-KCS combination will not only benefit customers, labor partners, and shareholders through new, single-line transportation services, attractive synergies and complementary routes, it will also benefit KCS and our employees by enabling us to become part of a growing and truly North American continental enterprise. »
While remaining the smallest of six U.S. Class 1 railroads by revenue, the combined company would have a much larger and more competitive network, operating approximately 20,000 miles of rail, employing close to 20,000 people, and generating total revenues of approximately $8.7 billion based on 2020 actual revenues. The CP-KCS combination is expected to create jobs across the joined network. Additionally, the companies expect efficiency and service improvements to achieve meaningful environmental benefits.