A Canadian Pacific Railway Ltd. train carrying oil leaves Hardisty, Alberta, Canada.
Photographer: Brett Gundlock / Bloomberg
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 United States, 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 Sunday.
The transaction gives CP access to the company’s extensive Midwest rail network based in Kansas City, Missouri, which connects Kansas and Missouri farms to the Gulf ports of Mexico. It would also reach Mexico, which accounted for nearly half of Kansas City Southern’s revenue last year, and create the only network that crosses the three North American countries.
“This transaction will be transformative for North America,” said Keith Creel, president and CEO of CP.
Creel will be the CEO of the new company, which will be headquartered in Calgary, and is expected to remain at the helm until at least early 2026, according to a section statement. The combined entity, which will be called Canadian Pacific Kansas City, or CPKC, will have revenues of about $ 8.7 billion and nearly 20,000 employees.
Trade Play
The deal comes as trade between the three nations is expected to recover under the Biden administration. A few days after his inauguration, U.S. President Joe Biden spoke with leaders in Canada and Mexico, his first calls with foreign counterparts, where issues ranging from trade to climate change were discussed.
The $ 25 billion Pacific Canada bid for Kansas City Southern would create a T-shaped rail network that would reach from Canada through the midwestern United States to Mexico.
Mexico is a crucial supplier of automobiles, electronics and food and a major customer of grain, fuel and consumer goods, ties that are likely to be strengthened with the approval of the US-Mexico-Canada trade pact.
Kansas City’s unique network linking Mexico’s largest cities and industrial ports with the western central United States would also be able to benefit if the coronavirus pandemic and disorderly ties between the United States and China compel companies to relocate manufacturing lower wages from Asia to North America.
As part of the transaction, CP will issue 44.5 million new shares, which will be financed with cash and debts of about $ 8.6 billion.
The agreement is expected to drive CP’s adjusted diluted EPS in the first full year after completion, generating a double-digit accumulation after full realization of subsequent synergies.
Kansas City has previously been an acquisition target. In September, Dow Jones reported that the company rejected a $ 20 billion offer from Blackstone Group Inc. and Global Infrastructure Partners.
(Add funds to deal with from the third paragraph.)