A Landmark Deal to Create a 20,000-Mile Rail Network Across North America
In a move that is set to transform the rail industry in North America, Canadian Pacific Railway Ltd. (CP) has agreed to purchase Kansas City Southern (KCS) for a staggering $25 billion. This deal marks a significant milestone in the history of both companies and will create a vast network that spans over 20,000 miles across Canada, the United States, and Mexico.
The Transaction Structure
Under the terms of the agreement, KCS shareholders will receive 0.489 of a CP share and $90 in cash for each share they hold, valuing their stock at $275 apiece – a premium of 23% over Friday’s record close. This transaction is expected to create a new entity called Canadian Pacific Kansas City (CPKC), which will be based in Calgary and have revenues of approximately $8.7 billion, employing nearly 20,000 people.
CP President and CEO Keith Creel on the Transaction
"This transaction will be transformative for North America," said CP President and Chief Executive Officer Keith Creel. "Our combined network will provide unparalleled connectivity between Canada, Mexico, and the United States, driving economic growth and job creation across the continent."
Creel is expected to remain at the helm of the new company until at least early 2026.
The Benefits of the Deal
The acquisition gives CP access to KCS’s extensive Midwestern rail network, which connects farms in Kansas and Missouri to ports along the Gulf of Mexico. This will enable CP to tap into the significant revenue generated by trade between the U.S., Canada, and Mexico – a market that is expected to grow under the Biden administration.
The combined entity will also benefit from KCS’s unique network linking Mexico’s largest industrial cities and ports to the U.S. Midwest, positioning it well to capitalize on companies moving lower-wage manufacturing from Asia to North America in response to the coronavirus pandemic and strained ties between the U.S. and China.
Financing the Deal
To finance the transaction, CP will issue 44.5 million new shares, backed by cash-on-hand and approximately $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 realization of synergies.
KCS as a Takeover Target
This is not the first time KCS has been considered for acquisition. In September, Dow Jones reported that the company rejected a $20 billion offer from Blackstone Group Inc. and Global Infrastructure Partners.
Conclusion
The agreement between CP and KCS marks a significant milestone in the history of both companies, creating a vast network that spans over 20,000 miles across North America. The deal is expected to drive economic growth, create jobs, and strengthen ties between Canada, Mexico, and the United States – making it a transformative transaction for the continent.
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