Canadian Pacific CP -1.37%
Railway Ltd. agreed to acquire Kansas City Southern KSU 0.38%
in a merger worth about $ 25 billion that would create the first freight rail network connecting Mexico, the US and Canada.
The companies said Sunday their boards are agreeing to a deal that values Kansas City at $ 275 a share in a combination of cash and shares. Kansas City investors will receive $ 0.489 of a Canadian Pacific share and $ 90 cash for each common Kansas share held.
If approved by regulators, the agreement would unite two of North America’s most important carriers, connecting factories and ports in Mexico, farms and plants in the US and Canada ocean ports in the Midwest and energy sources.
The combined company has about $ 8.7 billion in annual revenue and employs nearly 20,000 people. It will be managed by Keith Creel, CEO of the Canadian Pacific.
Kansas City Southern is the smallest of the five major U.S. railroads, but plays a key role in trade between the United States and Mexico. Its network extends mainly from the length of Mexico through Texas to its namesake. The Wall Street Journal last year rejected a $ 20 billion takeover of a group of institutional investors.
Canadian Pacific has long sought a union with Kansas City to expand its scope to its busy cargo routes stretching from Mexico through southern and midwestern U.S. states. CP’s major railroads run across Canada, some northern U.S. states, and south to Chicago.
The leader of the Canadian Railways, Mr. Creel, has worked closely with former chief Hunter Harrison, who has made a number of unsuccessful openings to buy Kansas City. Mr. Harrison died in 2017 after taking over and renovating another U.S. operator, CSX Corp.
“This will create the first railway line between America and Mexico-Canada,” Creel said in a statement.
Railroad mergers face direct barriers in the United States. Under Mr. Harrison abandons Canadian $ 30 billion bid for Norfolk Southern Corp.
in 2016 after regulators expressed concern about reduced competition and possible safety issues.
Kansas City and the Canadian Pacific currently have a single point where their two networks are connected in a Kansas City, Mo., facility they operate together. The merger could allow trains to travel north and south to prevent them from having to change cars and bypass Chicago, a busy and often busy traffic in the U.S. freight system.
The merger partners said the proposed combination would not reduce customer choice because there is no overlap between their systems. They said the possibility for single-lane routes would shift U.S. highway trucks, which would reduce congestion and emissions in the Dallas-to-Chicago corridor.
The freight rail industry experienced a sharp drop in volume last year when the pandemic slowed trade and temporarily closed many US stores, but the volume bounced back as factories continued to operate and the economies recovered. The trade volume overwhelmed some U.S. ports, causing congestion and delays.
Write to Jacquie McNish by [email protected]
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