Canadian Pacific Railway Limited (CP) and Kansas City Southern (KCS) announced that they have entered into a merger agreement, under which CP has agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately US$31 billion, which includes the assumption of US$3.8 billion of outstanding KCS debt.

In a statement, CP said the transaction, which has the unanimous support of both boards of directors, values KCS at US$300 per share, representing a 34% premium, based on the CP closing price on August 9, 2021, the date prior to which CP submitted a revised offer to acquire KCS, and KCS’ unaffected closing price on March 19, 2021.

“Our path to this historic agreement only reinforces our conviction in this once-in-a-lifetime partnership,” said CP President and Chief Executive Officer Keith Creel, adding that by bringing the two railroads together, the firms are also unlocking the “full potential” of its networks.

“This perfect end-to-end combination creates the first US-Mexico-Canada rail network with new single-line offerings that will deliver dramatically expanded market reach for CP and KCS customers, provide new competitive transportation options, and support North American economic growth,” Creel added.

KCS President and Chief Executive Officer Patrick J. Ottensmeyer said the partnership with CP will “create a railroad that is able to compete by providing the best value for the transportation dollar.”

“The CP-KCS combination will not only benefit customers, labor partners, and shareholders through new, single-line transportation services, attractive synergies and complementary routes, it will also benefit KCS and our employees by enabling us to become part of a growing and truly North American continental enterprise,” he added.

Completion by H2 2022

While remaining the smallest of six US Class 1 railroads by revenue, the combined company would have a much larger and more competitive network, operating approximately 20,000 miles of rail, employing close to 20,000 people, and generating total revenues of approximately US$8.7 billion based on 2020 actual revenues.

CP’s ultimate acquisition of control of KCS’ US railways is subject to the approval of the STB. In April, the STB decided that it would review the CP-KCS combination under the merger rules in existence prior to 2001 and the waiver granted to KCS in 2001 to exempt it from the 2001 merger rules.

In August, the STB reaffirmed that the pre-2001 rules would govern its review of the CP-KCS transaction.

CP said the STB review of CP’s proposed control of KCS is expected to be completed in the second half of 2022.

Upon obtaining control approval, the two companies will be integrated fully over the ensuing three years, unlocking the benefits of the combination.

Following STB approval of the CP’s control of KCS, Creel of CP will serve as the Chief Executive Officer of the combined company. The combined entity will be named Canadian Pacific Kansas City (CPKC).