A train from Canadian Pacific Railway Ltd. transporting 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, with the goal of creating a 20,000 mile rail network connecting the US, Mexico and Canada.
Kansas City investors will receive 0.489 of a CP stock and $ 90 in cash for each share they hold, valuing the stock at $ 275 each – 23% more than Friday’s record, according to a statement from both companies on Sunday.
The transaction gives CP access to the expansive rail network of the Kansas City, Missouri-based company that connects farms in Kansas and Missouri with ports along the Gulf of Mexico. It would also reach Mexico, which accounted for nearly half of Kansas City Southern’s revenues last year, creating the only network running through all three North American countries.
“This transaction will be a major change for North America,” said CP President and Chief Executive Officer Keith Creel.
Creel will become CEO of the new company, which will be based in Calgary, and is expected to remain at the helm until at least early 2026, according to a separate pronunciation. The combined entity, which will be called Canadian Pacific Kansas City or CPKC, will have sales of approximately $ 8.7 billion and nearly 20,000 employees.
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The deal comes as trade between the three countries is expected to pick up under Biden’s government. Days after his inauguration, US President Joe Biden spoke to the leaders of Canada and Mexico, his first phone calls with foreign counterparts, discussing issues from trade to climate change.
Canadian Pacific’s $ 25 billion bid for Kansas City Southern would create a T-shaped rail network that stretches from Canada through the Midwestern United States and deep into Mexico.
Mexico is a crucial supplier of automobiles, electronics and food and a major buyer of grain, fuel and consumer goods – ties likely to be strengthened by the approval of the US, Mexico and Canada trade pact in July.
Kansas City’s unique network connecting Mexico’s largest industrial cities and ports with the Midwestern US would also be well positioned to benefit if the coronavirus pandemic and the splintering ties between the US and China prompt companies to push for low-wage production. from Asia to North America.
As part of the transaction, CP will issue 44.5 million new shares, to be financed with cash and approximately $ 8.6 billion in debt.
The deal is expected to drive CP’s adjusted diluted EPS in the first full year upon completion, generating double-digit growth with the full realization of synergies thereafter.
Kansas City was previously a takeover target. In September, Dow Jones reported that the company was making a $ 20 billion offer from Blackstone Group Inc. and Global Infrastructure Partners had declined.
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