A Kansas City Southern Railroad (KSC) locomotive passes through Knoche Yard in Kansas City, Missouri, on Tuesday, January 7, 2020.
Whitney Curtis | Bloomberg | Getty Images
The Canadian Pacific Railway said Sunday it had agreed to buy Kansas City Southern for $ 25 billion in a cash and stock deal to create the first rail network linking the United States, Mexico and Canada, bet on a takeover in North American trade.
Kansas City Southern shareholders will receive $ 0.489 of a Canadian Pacific share and $ 90 in cash for each KCS joint stock held, the companies said in a joint statement. The deal, which has a business value of $ 29 billion, including debt, values Kansas City Southern at $ 275 a share, a 23% premium over Friday’s closing price of $ 224.16.
The transaction is the largest M&A launched in 2021.
“The new competition we will bring to the North American transportation market may not happen soon enough, because the new USMCA Trade Agreement between these three countries makes the efficient integration of the continent’s supply chains more important than ever.” said Keith Creel, Canadian executive director of Pacific. said in the statement. “This will create the first US-Mexico-Canada railway.”
The new and modernized US-Mexico-Canada trade pact entered into force in July last year, replacing the previous agreement, which lasted 26 years, and is expected to further encourage trade in production and agriculture between the three countries.
The Kansas City Southern Board of Directors approved the offer, and the two companies notified the U.S. Board of Surface Transportation to seek the agency’s required approval. Attempts by Canadian railway operators to buy US railway companies have been limited due to antitrust concerns.
Creel will continue to serve as CEO of the combined company, which will be headquartered in Calgary, the statement said.
The agreement comes amid expectations of a resumption of US-Mexico trade after Joe Biden replaced Donald Trump as US president.
The companies also highlighted the environmental benefits of the agreement, saying the new single-lane routes that would be created by the combination should change trucks on busy US highways and reduce emissions.
Railways are four times more fuel efficient than lorries, and a single train can hold more than 300 lorries on public roads and produce 75% less greenhouse gas emissions, the companies said in a joint statement.
Shareholders in Kansas City Southern are expected to own 25% of the remaining Canadian common shares in the Pacific under the agreement, the companies said.
Canadian Pacific has said it will issue 44.5 million new shares and raise approximately $ 8.6 billion in debt to finance the transaction.
The Financial Times first reported on the transaction.
Calgary-based Canadian Pacific is the largest rail operator in Canada, behind Canadian National Railway Co Ltd, with a market value of $ 50.6 billion.
Owns and operates a transcontinental freight railway in Canada and the United States. Grain transportation is the company’s largest revenue factor, accounting for about 58% of bulk revenue and about 24% of total 2020 transportation revenue.
Kansas City Southern has domestic and international rail operations in North America, focused on the North-South freight corridor that connects the commercial and industrial markets of the central United States with the industrial cities of Mexico.
Canadian Pacific’s latest attempt to expand its business in the US comes after it dropped a $ 28.4 billion hostile bid for Norfolk Southern Corp in April 2016. Canadian Pacific’s merger talks with CSX Corp, which owns a large network in the eastern United States, failed in 2014.
An offer from Canadian National Railway Co., the country’s largest railroad, to buy Burlington Northern Santa Fe, owned by Warren Buffett, was blocked by U.S. antitrust authorities in 1999-2000.
BMO Capital Markets and Goldman Sachs & Co. LLC are financial advisors to the Canadian Pacific, while BofA Securities and Morgan Stanley & Co. LLC are financial advisors to Kansas City Southern.