Canadian Pacific To Buy Kansas City Southern In $25 Billion Deal Creating First Rail Network Spanning U.S., Mexico And Canada

Topline

Canadian Pacific Railway has agreed to acquire Kansas City Southern in a $25 billion deal that will create the first rail network connecting the United States, Mexico and Canada, the two companies announced Sunday.

Train on tracks running along the Mississippi River levee in downtown Davenport Iowa. (Photo by: Don … [+] & Melinda Crawford/Education Images/Universal Images Group via Getty Images)

Education Images/Universal Images Group via Getty Images Key Facts

The transaction, which is expected to close by the middle of next year, values Kansas City Southern at $275 per share, nearly 23% more than the stock’s closing price Friday.

Kansas City Southern shareholders, who will own about 25% of the combined firm, will receive nearly 0.5 shares of Canadian Pacific and $90 in cash for each share of Kansas City Southern held.

Calgary, Alberta-based Canadian Pacific will also assume Kansas City Southern’s approximately $3.8 billion in debt outstanding, giving the transaction an enterprise value of nearly $29 billion.

Canadian Pacific will issue 44.5 million new shares and raise approximately $8.6 billion in new debt to fund the transaction, bringing its total outstanding debt to roughly $20.2 billion once the deal closes.

Operating under the name Canadian Pacific Kansas City, the combined company will be the smallest of the six U.S. Class 1 railroads by revenue, with approximately $9 billion in annual sales, about 20,000 miles of rail and 20,000 employees.

Key Background

Canadian Pacific and Kansas City Southern transport mainly commodities, automotive parts and food products across North America. The combined company will be based out of Calgary, with U.S. operations headquartered in Kansas City and another regional headquarters in Mexico City. The company will be governed by the new United States-Mexico-Canada Agreement, which went into effect in July and replaced the North American Free Trade Agreement. The agreement’s provisions include strengthened labor laws and a focus on increasing wages and adding jobs in the automotive industry.

Crucial Quote 

“The new competition we will inject into the North American transportation market cannot happen soon enough, as the new USMCA trade agreement among these three countries makes the efficient integration of the continent’s supply chains more important than ever before,” Canadian Pacific President and CEO Keith Creel, said in a statement. He will head up the combined entity.

Further Reading

Railroads Strike a $25 Billion Merger (WSJ)

Why Union Pacific Stock Isn’t Our Top Pick In Transportation Sector (Forbes)