Canadian Pacific Railway Ltd. will pay US$25-billion in stock and cash to take over Kansas City Southern railway in a deal that will widen the reach of the Calgary-based rail carrier deep into the United States and Mexico.
Announced on Sunday morning, the deal requires approval the the U.S. Surface Transportation Board, but has the support of both railways’ boards.
“The transaction will combine the two railroads to create the first rail network connecting the U.S., Mexico, and Canada,” the companies said in a joint statement. “The combined network’s new single-line offerings will deliver dramatically expanded market reach for customers served by CP and KCS, provide new competitive transportation service options, and support North American economic growth.”
Shareholders of KCS will receive 0.489 of a CP share and US$90 in cash for each stock after the deal closes, the companies said.
The north-south route will allow the combined companies to meet demand for goods moving under the USMCA free-trade agreement among Canada, Mexico and the United States, Keith Creel, CP’s chief executive, said in a statement.
CP is Canada’s second-largest railway, behind Canadian National Railway Co. Its network runs to Saint John from Vancouver, but reaches no farther south in the United States than Kansas City, Mo. The deal would allow CP to link in that hub with KCS and extend south to New Orleans on the Gulf Coast, and beyond Mexico City to the Pacific Coast.
The combined companies will operate 20,000 miles of rail, employ about 20,000 people and have sales of about US$8.7-billion.
KCS is the smallest of the U.S. Class 1 railroads, and has 2020 revenue of US$2.6-billion. CP posted revenue of $7.7-billion in 2020.
The agreement follows two failed attempts by CP to buy U.S. railways that operate in the eastern part of the country. CP dropped a bid to acquire Norfolk Southern Corp. in 2016 for US$28-billion. Talks to merge with CSX Corp. fell apart in 2014.
CP in 2020 gained access to the Atlantic Ocean and the Port of Saint John with the purchase of the Central Maine & Quebec Railway, which formerly operated the tracks involved in the Lac-Mégantic oil train explosion that killed 47 people in 2013.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.