A Canadian Pacific Railway Ltd. train carrying oil leaves Hardisty, Alberta, Canada.
Photographer: Brett Gundlock / Bloomberg
Photographer: Brett Gundlock / Bloomberg
Canadian Pacific Railway Ltd. agreed to buy Kansas City Southern for $ 25 billion, looking for a 20,000-mile rail network that connects the U.S., Mexico and Canada.
Investors in Kansas City will receive $ 0.489 of a CP share and $ 90 cash for each share they own, with the stock valued at $ 275 apiece – 23% more than Friday’s record, according to a statement from both companies Sunday.
The deal gives CP access to the sprawling Midwestern rail network in Kansas City, Missouri, which connects farms in Kansas and Missouri with ports along the Gulf of Mexico. It will also reach Mexico, which accounted for nearly half of Kansas City Southern’s revenue last year, creating the only network that cuts through all three North American states.
“This transaction will be transformative for North America,” said Keith Creel, president of CP and CEO.
Creel will be the CEO of the new Calgary-based company and is expected to remain in charge until at least early 2026, according to a separate statement. The combined entity, called the Canadian Pacific Kansas City, or CPKC, has revenues of approximately $ 8.7 billion and nearly 20,000 employees.
Trade Play
The deal comes as trade in the three countries is expected to increase under Biden’s government. Just days after his inauguration, US President Joe Biden spoke to the leaders of Canada and Mexico, his first calls to foreign counterparts, where issues of trade to climate change were discussed.
Canadian Pacific’s $ 25 billion bid for Kansas City Southern would create a T-shaped rail network that stretches from Canada through the American Midwest and deep into Mexico.
Mexico is a major supplier of automobiles, electronics and food and a major customer of grain, fuel and consumer goods, which is likely to be strengthened by the implementation of the U.S. and Mexico-Canada agreements in July.
The unique network of Kansas City connecting Mexico’s largest industrial cities and ports with the US Middle East will also be able to benefit if the coronavirus pandemic and the crumbling ties between US and China encourage lower wage production. to move from Asia to North America.
As part of the deal, CP will issue 44.5 million new shares to be financed with cash on hand and approximately $ 8.6 billion in debt.
The transaction is expected to increase the adjusted diluted profit of CP in the first full year after completion, and the double-digit increase will generate after the full realization of synergy thereafter.
Kansas City has been a takeover target in the past. In September, Dow Jones reported that the company had a $ 20 billion offer from Blackstone Group Inc. and Global Infrastructure Partners.
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