Canadian Pacific CP -1.37%
Railway Ltd. agreed to acquire Kansas City Southern KSU 0.38%
in a merger valued at about $ 25 billion that would create the first rail freight network linking Mexico, the United States and Canada.
The companies said on Sunday that their boards agreed to a deal that values Kansas City at $ 275 per share, in a combination of cash and shares. Kansas City investors will receive 0.489 of a Canadian Pacific share and $ 90 in cash for each Kansas City common share held.
If approved by regulators, the deal would unite two of North America’s major cargo carriers, linking factories and ports in Mexico, farms and factories in the Midwest USA and Canada’s ocean ports and energy resources.
The combined company would have about $ 8.7 billion in annual revenue and employ about 20,000 people. It would be chaired by Canadian Pacific CEO Keith Creel.
Kansas City Southern is the smallest of the top five freight railroads in the U.S., but plays a key role in US-Mexico trade. Its network runs mainly through the extension of Mexico, passing through Texas, to its homonymous city. The company last year rejected takeover offers worth about $ 20 billion from a group of institutional investors looking to make it private, The Wall Street Journal reported.
Canadian Pacific has long sought a union with Kansas City to extend its reach to its busy freight routes that extend from Mexico to the southern and central-western states of the United States. CP’s main railway lines run through Canada, some states in the northern United States and south of Chicago.
Canadian railroad leader Mr. Creel worked closely with ex-chief Hunter Harrison, who made a series of unsuccessful openings to buy Kansas City. Mr. Harrison died in 2017 after taking over and renewing another US operator, CSX Corp.
“This will create the first US-Mexico-Canada railroad,” said Creel in a statement.
Railroad mergers face significant regulatory hurdles in the United States. Under Harrison, Canadian Pacific abandoned a $ 30 billion search for Norfolk Southern Corp.
in 2016, after regulators expressed concern about reduced competition and possible security problems.
Kansas City and Canadian Pacific currently have a single point where their two networks connect, at a Kansas City, Missouri, facility that operates together. The merger could allow trains to travel north and south to avoid switching wagons and potentially bypass Chicago, a busy and often congested hub in the United States’ freight system.
The merger partners said the proposed combination would not reduce the choice for customers, as there is no overlap between their systems. They said the possibility of single-line routes would take trucks off US highways, reducing congestion and emissions on the Dallas to Chicago corridor.
The rail freight industry experienced a sharp drop in volume last year as the pandemic slowed trade and temporarily closed many stores in the United States, but volume recovered as factories continued to operate and economies have recovered. The volume of trade has overwhelmed some US ports, causing congestion and delays.
Write to Jacquie McNish at [email protected]
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