Canadian Pacific Railway to buy Kansas City Southern for $25B US
'This will create the first U.S.-Mexico-Canada railroad,' Canadian Pacific CEO says
Canadian Pacific Railway Ltd. on Sunday said it has agreed to buy Kansas City Southern for $25 billion US in a cash-and-shares deal to create the first rail network connecting the United States, Mexico and Canada.
Shareholders of Kansas City Southern will receive 0.489 of a Canadian Pacific share and $90 in cash for each KCS common share held, the companies said in a joint statement.
The deal, which has an enterprise value of $29 billion, including debt, values Kansas City Southern at $275 per share, representing a 23 per cent premium to Friday's closing price of $224.16.
"This transaction will be transformative for North America, providing significant positive impacts for our respective employees, customers, communities and shareholders," Canadian Pacific chief executive Keith Creel said in the statement.
"This will create the first U.S.-Mexico-Canada railroad."
Headquarters in Calgary
Creel will continue to serve as CEO of the combined company, which will be headquartered in Calgary, the statement said.
The deal comes amid expectations of a pick-up in U.S.-Mexico trade after Joe Biden replaced Donald Trump as U.S. president.
In a statement posted to Twitter, Alberta Premier Jason Kenney said that if approved, the deal would expand one of the province's largest employers while increasing shipping access to one of its largest export customers.
2/ There will be no job losses at the HQ or their operations here. <br><br>The combined rail network will give CP direct access to the US Gulf Coast & beyond, allowing it seamlessly to transport Alberta energy directly to Gulf Coast refineries, improving the economics of crude by rail.—@jkenney
Calgary Mayor Naheed Nenshi also responded in a tweet, calling it "big news for a great Calgary company."
"This should lead to growth in Calgary (including the head office of the combined global firm) and further solidifies our role as a major transportation and logistics player," Nenshi said.
Kansas City Southern's board has approved the bid, and the two companies have notified the U.S. Surface Transportation Board to seek the agency's required approval.
Shareholders in Kansas City Southern are expected to own 25 per cent of Canadian Pacific's outstanding common shares after the deal, the companies said.
Canadian Pacific said it will issue 44.5 million new shares and raise about $8.6 billion in debt to fund the transaction.
The Financial Times first reported on the deal on Sunday.
Previous U.S. deals squashed by regulators
Calgary-based Canadian Pacific is Canada's No. 2 railroad operator, behind Canadian National Railway Co Ltd., with a market value of $50.6 billion US.
It owns and operates a transcontinental freight railway in Canada and the United States. Grain haulage is the company's biggest revenue driver, accounting for about 58 per cent of bulk revenue and about 24 per cent of total freight revenue in 2020.
Kansas City Southern has domestic and international rail operations in North America, focused on the north-south freight corridor connecting commercial and industrial markets in the central U.S. with industrial cities in Mexico.
Canadian railroad operators' attempts to buy U.S. rail companies have met limited success because of anti-trust concerns.
Canadian Pacific's latest attempt to expand its U.S. business comes after it dropped a hostile $28.4 billion bid for Norfolk Southern Corp. in April 2016. Canadian Pacific's merger talks with CSX Corp., which owns a large network across the eastern U.S., failed in 2014.
A bid by Canadian National Railway Co., the country's biggest railway, to buy Warren Buffett-owned Burlington Northern Santa Fe was blocked by U.S. anti-trust authorities in 1999-2000.