Canadian Pacific Railway Secures $31 Billion Deal to Acquire Kansas City Southern

Canadian Pacific Railway secured a $27 billion deal to take over Kansas City Southern that, if approved by the Surface Transportation Board (STB), would be the first major rail merger in the U.S. for decades.

The KCS board of directors voted unanimously on Sept. 15 to terminate its previously reached agreement with Canadian National.

“This perfect end-to-end combination creates the first U.S.-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,” said CP President and CEO Keith Creel in the announcement.

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While remaining the smallest of six U.S. Class 1 railroads by revenue, the combined company would operate approximately 20,000 miles of rail, employing close to 20,000 people, and generating total revenues of approximately $8.7 billion based on 2020 actual revenues, noted the rail companies in a press release.

Both railways’ boards of directors unanimously approved the deal, which values KCS at $300 per share and includes the assumption of $3.8 billion of outstanding KCS debt, resulting in a transaction valued at $31 billion.

The STB approved the use of a voting trust for a CP-KCS merger in May. The Board ruled in April that a merger with KCS involving CP would not be subject to rules adopted in 2001 that require merger applicants to present effective service assurance plans and proposals to enhance, not merely preserve, competition.

NGFA had encouraged the Board to consider all proposed mergers under the rules in effect after 2001 to help ensure any approved merger enhances competition.

According to the Board, the CP-KCS merger is waived from the 2001 merger rules because the combination of CP and KCS – the sixth largest and seventh largest Class I railroads, respectively – would still result in the smallest Class I railroad based on U.S. operating revenues.

Also, a merger of the CP and KCS networks would appear to result in the fewest overlapping routes when compared to a merger between KCS and any other Class I carrier, the Board said.

STB announced on Aug. 31 that it denied the Canadian National’s motion to use a voting trust to take ownership of KCS, finding it would not be consistent with the public interest.

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

- From the Sept. 17 NGFA Newsletter

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Kansas City Southern Terminates Canadian National Merger Agreement, Enters Canadian Pacific Merger Deal