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.
CP dropped a $28.4 billion hostile bid for Norfolk Southern Corp in 2016 and failed to finish a deal to buy CSX Corp in 2014.
What's Next: The two companies will hold an investor conference call today at 2 p.m. EST. To listen to the live conference call, dial (844) 450-0389 in the U.S. or (236) 714-3016 internationally. A live webcast of the call and the replay will be available on the CP website and the KCS website. Supporting materials will be posted on www.FutureForFreight.com.
Price Action: Shares of both companies hit 52-week highs late last week, with Canadian Pacific's NYSE-listed shares ending the week up 1.62% at $378.48 and Kansas City Southern ending the week up 3.54% at $224.16.
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