Blockbuster rail deal creates 20,000 mile Canada-U.S.-Mexico network - The Dallas Morning News

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Canadian Pacific Railway Ltd. agreed Sunday to buy Kansas City Southern for $25 billion, seeking to create a 20,000-mile rail network linking the U.S., Mexico and Canada.

Kansas City investors will receive 0.489 of a CP share and $90 in cash for each share they hold, valuing the stock at $275 apiece — 23% more than Friday’s record close, according to a statement from both companies.

The transaction gives CP access to the Kansas City, Missouri-based company’s sprawling Midwestern rail network that connects farms in Kansas and Missouri to ports along the Gulf of Mexico. It would also give it reach to Mexico, which made up almost half of Kansas City Southern’s revenue last year, and create the only network that cuts through all three North American countries.

“This transaction will be transformative for North America,” CP President and Chief Executive Officer Keith Creel said.

Creel will be CEO of the new company, to be based in Calgary, and is expected to remain at the helm until at least early 2026, according to a separate statement. The combined entity, to be called Canadian Pacific Kansas City, or CPKC, will have revenue of about $8.7 billion and almost 20,000 employees.

The deal comes as trade across the three nations is expected to pick up under the Biden administration. Just days after his inauguration, U.S. President Joe Biden spoke with the leaders of Canada and Mexico, his first calls with foreign counterparts, where issues from trade to climate change were discussed.

Mexico is a crucial supplier of automobiles, electronics and food and a major customer of grain, fuel and consumer goods — ties that are likely to be strengthened by July’s passage of the U.S.-Mexico-Canada trade pact.

Kansas City’s unique network linking Mexico’s largest industrial cities and ports to the U.S. Midwest also would be positioned to benefit if the coronavirus pandemic and fraying ties between the U.S. and China prompt companies to move lower-wage manufacturing from Asia to North America.

The companies also touted the merger’s potential impact on truck traffic, saying it will shift cargo traffic from crowded U.S. highways to rail.

“In the Dallas to Chicago corridor alone, the synergies created by this combination are expected to result in meaningful reduction in truck traffic on publicly funded highways,” the companies said. “Rail is four times more fuel efficient than trucking, and one train can keep more than 300 trucks off public roads and produce 75% less greenhouse gas emissions.”

As part of the transaction, CP will issue 44.5 million new shares, to be financed with cash-on-hand and about $8.6 billion in debt.

The deal is expected to boost CP’s adjusted diluted EPS in the first full year after completion, generating double-digit accretion upon the full realization of synergies thereafter.

Kansas City has been a takeover target before. In September, Dow Jones reported that the company rejected a $20 billion offer from Blackstone Group Inc. and Global Infrastructure Partners.

Carla Canivete and Thomas Black, Bloomberg

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