Railroads Strike a $25 Billion Merger -- Update
22 March 2021 - 12:49AM
Dow Jones News
By Jacquie McNish
Canadian Pacific Railway Ltd. agreed to acquire Kansas City
Southern in a merger valued at about $25 billion that would create
the first freight-rail network linking Mexico, the U.S. and
Canada.
The companies said Sunday their boards agreed to a deal that
values Kansas City at $275 a share in a combination of cash and
stock. Kansas City investors will receive 0.489 of a Canadian
Pacific share and $90 in cash for each Kansas City common share
held.
If approved by regulators, the deal would unite two of the major
North American freight carriers, linking factories and ports in
Mexico, farms and plants in the midwestern U.S. and Canada's ocean
ports and energy resources.
The combined company would have about $8.7 billion in annual
revenue and employ nearly 20,000 people. It would be run by
Canadian Pacific CEO Keith Creel.
Kansas City Southern is the smallest of the five major freight
railroads in the U.S. but plays a key role in U.S.-Mexico trade.
Its network mainly runs up the length of Mexico through Texas to
its namesake city. The company last year rejected takeover bids
worth roughly $20 billion from a group of institutional investors
seeking to take it private, The Wall Street Journal reported.
Canadian Pacific has long sought a union with Kansas City to
extend its reach into its busy freight routes that stretch from
Mexico through southern and midwestern U.S. states. CP's major rail
lines run across Canada, some northern U.S. states and south to
Chicago.
The Canadian railway's leader, Mr. Creel, worked closely with
former chief Hunter Harrison, who made a number of unsuccessful
overtures to buy Kansas City. Mr. Harrison died in 2017 after
taking over and revamping another U.S. operator, CSX Corp.
"This will create the first U.S.-Mexico-Canada railroad," Mr.
Creel said in a statement.
Railway mergers face significant regulatory hurdles in the U.S.
Under Mr. Harrison, Canadian Pacific abandoned a $30 billion
pursuit of Norfolk Southern Corp. in 2016 after regulators
expressed concern about reduced competition and potential safety
issues.
Kansas City and Canadian Pacific currently have a single point
where their two networks connect, in a Kansas City, Mo., facility
they jointly operate. The merger could allow trains traveling north
and south to avoid having to interchange cars and potentially
bypass Chicago, a busy and often congested hub in the U.S. freight
system.
The merger partners said the proposed combination wouldn't
reduce choice for customers since there is no overlap between their
systems. They said the possibility for single-line routes would
shift trucks off U.S. highways, reducing congestion and emissions
in the Dallas-to-Chicago corridor.
The freight-rail industry suffered a sharp drop in volume last
year as the pandemic slowed trade and temporarily shut many U.S.
stores, but volume has bounced back as factories continued to
operate and economies recovered. Trade volume has overwhelmed some
U.S. ports, causing congestion and delays.
Write to Jacquie McNish at Jacquie.McNish@wsj.com
(END) Dow Jones Newswires
March 21, 2021 09:34 ET (13:34 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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