Canadian Pacific Railway and Kansas City Southern announced their intention to merge, a move they say will create the first Canada-to-Mexico rail network.
Under the agreement, CP will acquire KCS in a stock and cash transaction representing an enterprise value of approximately $29 billion. It includes the assumption of $3.8 billion of outstanding KCS debt.
The transaction, which has the unanimous support of 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. Following the closing into a voting trust, common shareholders of KCS will receive 0.489 of a CP share and $90 in cash for each KCS common share held.
The deal requires approval from the Surface Transportation Board (STB).
“This transaction will be transformative for North America, providing significant positive impacts for our respective employees, customers, communities, and shareholders,” CP President and Chief Executive Officer Keith Creel said in a news release.
“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,” Creel added. “CP and KCS have been the two best performing Class 1 railroads for the past three years on a revenue growth basis.”
While remaining the smallest of six U.S. Class 1 railroads by revenue, railroad officials argue the combined company will result in a more extensive and more competitive network. It will operate roughly 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 new competition we will inject into the North American transportation market cannot happen soon enough, as the new USMCA Trade Agreement among these three countries makes the efficient integration of the continent’s supply chains more important than ever before,” Creel said. “Over the coming months, we look forward to speaking with customers of all sizes, and communities across the combined network, to outline the compelling case for this combination and reinforce our steadfast commitment to service and safety as we bring these two iconic companies together.”