Canadian Pacific Railway will buy Kansas City Southern for $ 25 billion

Canadian Pacific Railway said Sunday it agreed to buy Kansas City Southern for $ 25 billion in a deal with cash and shares to create the first rail network connecting the United States, Mexico and Canada, betting on a North American trade pickup .

Kansas City Southern shareholders will receive $ 0.489 of a Canadian share in the Pacific and $ 90 in cash for each common KCS share held, the companies said in a joint statement. The deal, which has a business value of $ 29 billion including debt, values ​​Kansas City Southern at $ 275 per share, representing a 23% premium to Friday’s closing price of $ 224.16.

The transaction is the largest merger and acquisition launched in 2021.

“The new competition we will inject into the U.S. transportation market may not occur soon enough, as the new USMCA Trade Agreement between these three countries makes the efficient integration of the continent’s supply chains more important than ever. said Keith Creel, executive director of the Canadian Pacific. he said in the statement. “This will create the first US-Mexico-Canada railroad.”

The new and modernized US-Mexico-Canada trade pact came into force in July last year, replacing the previous agreement that lasted 26 years, and is expected to further encourage trade in manufacturing and agriculture. between the three countries.

The Kansas City Southern council has approved the tender and the two companies have notified the U.S. surface transportation board to request the agency’s necessary approval. Attempts by Canadian railway operators to buy US railway companies have been limited in success due to antitrust concerns.

Creel will continue to serve as CEO of the combined company, which will be headquartered in Calgary, according to the statement.

The deal comes amid expectations of a recovery in U.S.-Mexico trade after Joe Biden replaced Donald Trump as U.S. president.

The companies also highlighted the environmental benefits of the deal, saying the new single-line routes that would be created through the combination are expected to divert trucks from busy U.S. highways and reduce emissions.

The railroad is four times more fuel efficient than truck transportation and a train can keep more than 300 trucks off the public highway and produce 75 percent less greenhouse gas emissions, companies reported in a joint statement.

Kansas City Southern shareholders are expected to own 25% of the outstanding common shares of Pacific Canada 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.

Calgary-based Canadian Pacific is Canada’s No. 2 rail operator, behind Canadian National Railway Co. Ltd., with a market value of $ 50.6 billion.

It owns and operates a transcontinental freight railroad in Canada and the United States. Grain transportation is the company’s main revenue driver, accounting for approximately 58% of mass revenue and approximately 24% of total merchandise revenue by 2020.

Kansas City Southern has domestic and international rail operations in North America, centered on the North-South freight corridor that connects industrial and commercial markets in the central United States with industrial cities in Mexico.

Canadian Pacific’s last attempt to expand its business in the United States comes after it abandoned a $ 28.4 billion hostile offer by Norfolk Southern Corp in April 2016. Canadian Pacific’s merger talks with CSX Corp , owner of a large network in the eastern United States, failed in 2014.

U.S. antitrust authorities blocked in 1999-2000 bids from Canadian National Railway Co., the nation’s largest railroad, to buy Burlington Northern Santa Fe, owned by Warren Buffett.

BMO Capital Markets and Goldman Sachs & Co. LLC are financial advisors to Canadian Pacific, while BofA Securities and Morgan Stanley & Co. LLC are financial advisors to Kansas City Southern.