Canadian Pacific Rail To Buy Kansas City Southern For $25 Billion

orange train between fall trees

Canadian Pacific Railway will buy out Kansas City Southern in a merger that CP says will create the first U.S.-Mexico-Canada railroad.

What Happened

 Canadian Pacific Railway Limited (CP) and Kansas City Southern (KSU) on Sunday announced that they have entered into a merger agreement, where Canadian Pacific has agreed to buy Kansas City Southern for $25 billion in a cash-and-shares deal. The deal has a total enterprise value of almost $29 billion when including the assumption of $3.8 billion of outstanding KCS debt.

Pending final approval from the U.S. Surface Transportation Board on the merger, the merger will combine the two railroads to create create "the first U.S.-Mexico-Canada railroad," Canadian Pacific CEO Keith Creel said in a statement. 

Creel will take over as CEO of the combined company, which will be named Canadian Pacific Kansas City. Its headquarters will be in Calgary, Alberta, with Kansas City remaining as the company's U.S. headquarters.

Post-merger, the common shareholders of KCS will receive 0.489 of a CP share and $90 in cash for each KCS common share held. The deal values Kansas City Southern at $275 per share, representing a 23% premium to Friday's closing price of $224.16, according to Reuters.

Why It Matters

The combined company will operate about 20,000 miles of rail, have almost 20,000 employee and generate revenues of about  $8.7 billion, based on 2020 actual revenues.

The company says that while it will remain the smallest of the six major U.S. Class 1 railroads by revenue, the merger will make its network more competitive by expanding its reach for customers. The two railroads combined network will connect points throughout Canada and Mexico, and points in the Midwest, Northeast and South Central U.S.

Canadian railroads have run into antitrust issues when trying to expand into the U.S. in the past, Reuters reported. 

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