After several months of deal-making between Kansas City Southern, Canadian National, and Canadian Pacific railroad companies, KC Southern is choosing to merge with CP in hopes of creating the first-of-its kind railroad from Canada to Mexico.

KC Southern's board of directors voted unanimously Wednesday to terminate its previously reached agreement with Canadian National. 

According to a KCS release, both the CP and KCS boards of directors unanimously agreed KCS shares are valued at $300 per share, making the acquisition worth nearly $31 billion in stock and cash, as of Aug. 9. The transaction also includes CP acquiring $3.8 billion of KCS debt, the companies noted.

"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,” said CP President and CEO Keith Creel.

KCS President and CEO Patrick Ottensmeyer said the company is glad to be partnering with CP.

“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," Ottensmeyer said.

Since KCS is dissolving its agreement with CN, KCS must pay a $700 million termination fee to CN. KCS must also return the $700 million that CN paid to KC Southern to pay CP to terminate their May agreement. 

"We believe that the decision not to pursue our proposed merger with KCS any further is the right decision for CN as responsible fiduciaries of our shareholders’ interests," CN President and CEO JJ Ruest said.

A KCS stockholders meeting was originally scheduled for Friday, Sept. 24, but it has been cancelled. 

This long-fought rail battle began in March 2021 when KC Southern and CP originally agreed on a merger acquisition.

A few months later in May, Canadian National, which is a much larger Class I railroad than CP and KCS, came in with a higher offer to KC Southern, which KCS accepted.

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Both Canadian companies see the merger acquisition as a way to increase Canada’s trade opportunities with Mexico, because KC Southern has lines extending into that country. 

The merger would provide CP with direct access to Mexico to ship agricultural goods. Lines also extend to New Orleans, which hosts a major port to ship agricultural commodities like corn and soybeans.

The mergers are subject to approval by the Surface Transportation Board, which rejected CN’s voting trust Aug. 31, saying the acquisition proposal was not in the public’s best interest. This sparked CP to make another offer to KC Southern on Sept.1. 

While the STB approved CP’s voting trust in May, CP and KCS stockholders, Mexican regulators, and other custom closing conditions still need to be approved before the deal is final.

The companies expect the U.S. STB to finish its overall review process of CP’s acquisition in 2022.

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