Logistics article(s)
March 15, 2023

Canadian Pacific (CP) and Kansas City Southern (KCS) announced that the US Surface Transportation Board (STB) issued a decision approving the companies' joint merger application.


The approval, issued on March 15, is subject to "certain conditions" — but authorizes the two railways to combine to form Canadian Pacific Kansas City (CPKC), the first single-line railway connecting the US, Mexico and Canada.


"The decision authorizes CP to exercise control of KCS as early as April 14, 2023, at or after which point CP and KCS would combine to create the new CPKC," CP and KCS said in a joint statement.


It added that CP is reviewing the full 212-page decision in detail and, in the coming days, will announce its plans with respect to the creation of CPKC.


"This decision clearly recognizes the many benefits of this historic combination," said Keith Creel, CP president and chief executive officer, adding that the merger "will stimulate new competition, create jobs, lead to new investment in our rail network, and drive economic growth."


"A combined CPKC will connect North America through a unique rail network able to enhance competition, provide improved reliable rail service, take trucks off public roads and improve rail safety by expanding CP’s industry-leading safety practices," the CP chief executive added.


Patrick J. Ottensmeyer, KCS president and chief executive officer, also welcomed the STB approval noting the combination as an "important milestone" and a "catalyst for realizing the benefits of a North American railroad."


"The KCS Board of Directors and management team are very proud of the many contributions and achievements of the people who have made KCS what it is today, and we are excited about the boundless possibilities as we move forward into the next chapter as CPKC," he said.


The statement noted that CPKC would bring a new standard of safety to the North American rail landscape, with CP having been the safest railroad in North America for 17 straight years as measured by the Federal Railroad Administration train accident frequency ratio.


In 2022, CP had an all-time best frequency of 0.93, a rate nearly half what the company produced a decade ago and 69% lower than the Class 1 average.


"The Board expects that this new single-line service will foster the growth of rail traffic, shifting approximately 64,000 truckloads annually from North America's roads to rail, and will support investment in infrastructure, service quality, and safety," the board said in its decision.


STB added that the transaction is "end-to-end," which means that there are "little to no track redundancies or overlapping routes."


"If consummated, it will reduce travel time for traffic moving over the single line service; it should result in increased incentives for investment; and it will eliminate the need for the two now-separate CP and KCS systems to interchange traffic moving from one system to the other. This will enhance efficiency, which in turn will enable the new CPKC system to better compete for traffic with the other larger Class I carriers," the decision says.


"The Transaction will make possible improved single-line service for many shippers and will result in merger synergies that are likely to allow CPKC to be a vigorous competitor to other Class Is by providing improved service at a lower cost," the board concluded.


CP's acquisition of KCS


CP completed its US$31 billion acquisition of KCS on December 14, 2021.


Immediately upon the closing of that acquisition, shares of KCS were placed into a voting trust, with Dave Starling, former KCS President and CEO, appointed as the trustee.


Upon Starling's death, Ronald L. Batory was appointed as successor trustee with the STB's approval.


CP noted that the Voting Trust has ensured that KCS operates independently of CP during the regulatory review process, and until CP exercises control pursuant to the STB decision, CP and KCS will continue to operate independently.


Headquartered in Calgary, Alta., Canada, CPKC would be the first railway connecting North America.


While remaining the smallest of six US Class 1 railroads by revenue, the combined company will have a much larger and more competitive network, operating approximately 20,000 miles of rail.


The joint statement noted that once combined, full integration of CP and KCS is expected to happen over the next three years, unlocking the benefits of the combination.

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