A Kansas City Southern (KSC) rail locomotive passes Knoche Yard in Kansas City, Missouri on Tuesday, January 7, 2020.
Whitney Curtis | Bloomberg | Getty Images
Canadian Pacific Railway said Sunday it has agreed to buy Kansas City Southern for $ 25 billion in a cash-and-shares deal to create the first rail network connecting the United States, Mexico and Canada, betting on a pick up in North America. trade.
Kansas City Southern shareholders will receive 0.489 of a Canadian Pacific share and $ 90 in cash for each common stock of KCS held, the companies said in a joint statement. The deal, which has an enterprise value of $ 29 billion including debt, values Kansas City Southern at $ 275 a share, representing 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 into the North American transportation market cannot happen quickly enough as the new USMCA trade agreement between these three countries makes the efficient integration of the continent’s supply chains more important than ever before,” said Keith Creel, Chief Executive of Canadian Pacific. said in the statement. “This will create the first rail line between the US, Mexico and Canada.”
The new and modernized trade pact between the US and Mexico and Canada came into effect in July last year, replacing the previous 26-year deal, and is expected to further boost manufacturing and agricultural trade activities between the three countries.
The Kansas City Southern board of directors approved the offer, and the two companies notified the US Surface Transportation Board to obtain the required agency approval. Canadian rail operators’ attempts to buy US rail companies have met with limited success due to competition concerns.
Creel will continue to serve as CEO of the combined company, which will be headquartered in Calgary, the statement said.
The deal meets expectations that US-Mexico trade will pick up after Joe Biden replaces Donald Trump as US president.
The companies also highlighted the environmental benefits of the deal, saying the new single-line routes created by the combination are expected to move trucks off busy U.S. highways and reduce emissions.
Rail is four times more economical than freight, and one train can keep more than 300 trucks off public roads and produce 75% fewer greenhouse gas emissions, the companies said in a joint statement.
Kansas City Southern shareholders are expected to own 25% of Canadian Pacific’s outstanding common stock following the deal, the companies said.
Canadian Pacific said it will issue 44.5 million new shares and raise approximately $ 8.6 billion in debt to fund the transaction.
The Financial Times first reported on the deal.
Calgary-based Canadian Pacific is Canada’s second rail operator, after Canadian National Railway Co Ltd, with a market value of $ 50.6 billion.
It owns and operates a transcontinental freight rail line in Canada and the United States. Grain transport is the company’s largest source of income, accounting for about 58% of bulk revenue and about 24% of total freight revenue in 2020.
Kansas City Southern has domestic and international rail operations in North America, focusing on the North-South Freight Corridor connecting commercial and industrial markets in the central United States with industrial cities in Mexico.
Canadian Pacific’s latest effort to expand its US operations comes after it dropped a hostile $ 28.4 billion 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.
A bid by Canadian National Railway Co, the nation’s largest railroad, to buy Burlington Northern Santa Fe, owned by Warren Buffett, was blocked by US antitrust authorities in 1999-2000.
BMO Capital Markets and Goldman Sachs & Co. LLC serve as financial advisors to Canadian Pacific, while BofA Securities and Morgan Stanley & Co. LLC serve as financial advisors to Kansas City Southern.