CP of the Canadian Pacific -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 railroad and freight network linking Mexico, the U.S. and Canada.
The companies said 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 share in the Pacific and $ 90 in cash for every common Kansas City share they have.
If approved by regulators, the deal would unite two of the major U.S. freight carriers, which would link factories and ports in Mexico, farms and plants in ocean ports and energy resources in the midwestern U.S. and Canada.
The combined company would have an annual revenue of about $ 8.7 billion and would employ about 20,000 people. It would be led by Canadian Pacific CEO Keith Creel.
Kansas City Southern is the smallest of the top five freight railroads in the United States, but plays a key role in U.S.-Mexico trade. Its network mainly travels the length of Mexico through Texas to its city of the same name. Last year, the company turned down $ 20 billion worth of takeover bids from a group of institutional investors who wanted to make them private, The Wall Street Journal reported.
Canadian Pacific has long been seeking a union with Kansas City to extend its reach to its busy freight routes that stretch from Mexico to the southwestern and midwestern states of the United States. CP’s major rail lines run through Canada, some northern states and south to Chicago.
Creel, the leader of the Canadian railroad, worked closely with former Hunter Harrison, who made several unsuccessful openings to buy Kansas City. Harrison died in 2017 after taking over and renewing another US operator, CSX Corp.
“This will create the first U.S.-Mexico-Canada railroad,” Creel said in a statement.
Rail mergers face major regulatory hurdles in the US Under Harrison, Pacific Canada abandoned the $ 30 billion Norfolk Southern chase. Corp.
in 2016 after regulators expressed concern about reduced competition and possible safety issues.
Currently, Kansas City and Pacific Canada have a single point where their two networks connect, at a jointly operated Kansas City, Mo facility. The merger could allow trains traveling north and south to avoid having to swap cars and overlook Chicago, a busy and often congested hub of the U.S. 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 displace trucks from U.S. highways, reducing congestion and emissions on the Dallas-Chicago corridor.
The freight rail industry suffered a sharp drop in volume last year as the pandemic slowed trade and temporarily closed many U.S. stores, but the volume has recovered as factories continue to operate and economies were recovering. Trade volume has overflowed some U.S. ports, causing congestion and delays.
Write to Jacquie McNish to [email protected]
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8