CP Rail (CP) to buy Kansas City Southern (KSU) for $ 25 billion

Photographer: Brett Gundlock / Bloomberg

Canadian Pacific Railway Ltd. agreed to buy Kansas City Southern for $ 25 billion, seeking to create a 20,000-mile rail network connecting the US, Mexico and Canada.

Kansas City investors will receive 0.489 of a CP share and $ 90 in cash for each share they hold, valuing the shares at $ 275 each – 23% more than Friday’s record close, according to a statement from both companies on Sunday.

The transaction gives CP access to the company’s extensive Kansas City, Missouri-based midwest rail network, which connects farms in Kansas and Missouri to ports along the Gulf of Mexico. It would also provide access to Mexico, which accounted for almost half of Kansas City Southern’s revenue last year, and create the only network that cuts through all three North American countries.

“This transaction will be transformative for North America,” said CP President and CEO Keith Creel.

Creel will be the CEO of the new company, based in Calgary, and should remain in charge until at least the beginning of 2026, according to a separate document demonstration. The combined entity, to be called Canadian Pacific Kansas City, or CPKC, will have revenues of about $ 8.7 billion and almost 20,000 employees.

Trade Play

The agreement comes at a time when trade between the three nations is expected to increase under the Biden government. A few days after his inauguration, the President of the United States, Joe Biden, spoke with the leaders of Canada and Mexico, in his first calls with his foreign counterparts, where issues of trade and climate change were discussed.

Mexico is a crucial supplier of automobiles, electronics and food and a major customer of grains, fuel and consumer goods – ties that are likely to be strengthened by the approval of the US-Mexico-Canada trade pact in July.

The exclusive Kansas City network, which links Mexico’s largest industrial cities and ports to the Midwest of the United States, would also be positioned to benefit if the coronavirus pandemic and the erosion of ties between the United States and China led to companies transferring low-wage manufacturing from Asia to North America.

As part of the transaction, CP will issue 44.5 million new shares, to be financed with cash and around US $ 8.6 billion in debt.

The business is expected to boost CP’s adjusted diluted EPS in the first full year after completion, generating double-digit growth after the full realization of synergies thereafter.

Kansas City has been a takeover target before. In September, Dow Jones reported that the company rejected a $ 20 billion offer from Blackstone Group Inc. and Global Infrastructure Partners.

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