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ArchivePorts & Rail

Canadian Pacific agrees to buy Kansas City Southern to link Canada, US and Mexico by rail

The March 2021 deal valued Kansas City Southern at about $29 billion including debt and aimed to create the first single railroad spanning Canada, the U.S. and Mexico.

By Transport News Staff · Added to the archive

On March 21, 2021, Canadian Pacific and Kansas City Southern announced an agreement to combine. The two said the merger would create the first railroad network connecting the U.S., Mexico and Canada.

The terms

The deal valued KCS at an enterprise value of about $29 billion, including roughly $3.8 billion of KCS debt that CP would assume. KCS shareholders were offered 0.489 of a CP share plus $90 in cash for each KCS share. That worked out to $275 a share, a 23% premium to KCS's closing price on March 19, 2021.

CP planned to issue 44.5 million new shares and take on about $8.6 billion in new debt to pay for it.

What the combined railroad would look like

The companies said the merged system would cover about 20,000 miles of track, employ close to 20,000 people and generate about $8.7 billion in revenue, based on 2020 results. Even combined, it would still be the smallest of the six U.S. Class 1 railroads.

The new company would be called Canadian Pacific Kansas City, or CPKC. It would be headquartered in Calgary, with Kansas City, Missouri, as its U.S. headquarters. CP Chief Executive Keith Creel would lead it. The companies projected about $780 million in annual synergies over three years.

The two networks touched at only one point, Kansas City. The companies said some traffic could avoid the congested Chicago gateway by using CP's route through Iowa.

Regulatory path

The plan called for CP to buy KCS shares into a voting trust in the second half of 2021, which would keep the railroads independent while the U.S. Surface Transportation Board reviewed the merger. The companies expected that review to finish around the middle of 2022.

What it meant for truckers

The railroads pitched the merger partly as a way to win freight from the highway. They pointed to lanes such as Dallas-Chicago.

For carriers, the deal signaled that rail intended to compete harder for long-haul cross-border freight between Mexico, the U.S. Midwest and Canada. It also meant more potential drayage work around intermodal ramps on the combined network.

The deal was not yet settled. In the months that followed, a rival bid from Canadian National would turn it into a contest for KCS.

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