Canadian Pacific Railway agrees to buy Kansas City Southern

Canadian Pacific Railway agreed to acquire Kansas City Southern in a merger valued at about $25 billion in stock and cash. If approved by the Surface Transportation Board, the transaction would create the first rail network linking the U.S., Mexico, and Canada.

CP President and Chief Executive Officer Keith Creel described the transaction as “transformative for North America.”

“This will create the first U.S.-Mexico-Canada railroad, bringing together two railroads that have been keenly focused on providing quality service to their customers to unlock the full potential of their networks. CP and KCS have been the two best performing Class 1 railroads for the past three years on a revenue growth basis,” said Creel. He will continue to serve as CEO of the combined company.

The transaction, which was unanimously supported by both boards of directors, values KCS at $275 per share, representing a 23% premium based on the CP and KCS closing prices on March 19, 2021, according to a joint statement issued by CP and KCS. The merger includes the assumption of $3.8 billion of outstanding KCS debt.

“In combining with CP, customers will have access to new, single-line transportation services that will provide them with the best value for their transportation dollar and a strong competitive alternative to the larger Class 1s,” said KCS President and Chief Executive Officer Patrick Ottensmeyer.

“KCS employees will benefit from being part of a truly North American continental enterprise, which creates a strong platform for revenue growth, capital investment, and future job creation. Customers, labor partners, and shareholders will all benefit from the inherent strengths of this combination, including attractive synergies and complementary routes,” said Ottensmeyer. 

While remaining the smallest of six U.S. Class 1 railroads by revenue, the combined company “will be 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,” according to their press release.

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“CP and KCS interchange and operate an existing shared facility in Kansas City, Mo., which is the one point where they connect. This transaction will alleviate the need for a time consuming and expensive interchange, improving efficiency and reducing transit times and costs,” according to the release. “The combination also will allow some traffic between KCS-served points and the Upper Midwest and Western Canada to bypass Chicago via the CP route through Iowa. This will improve service and has the potential to contribute to the reduction of rail traffic, fuel burn, and emissions in Chicago, an important hub city.”

The companies also pointed to the environmental benefits of the merger, “Rail is four times more fuel efficient than trucking, and one train can keep more than 300 trucks off public roads and produce 75% less greenhouse gas emissions,” they noted. CP is currently developing North America’s first line-haul hydrogen-powered locomotive.

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