In an historic announcement today, Kansas City Southern (KCS) and Canadian Pacific Railway (CP) agreed to merge both railroads, which would make it the first North American railroad to serve three countries. (See map below)
The merger will require approval from the Surface Transportation Board (STB) and, if OK'd, CP will acquire KCS in a stock and cash transaction approaching $29 billion dollars. The merger includes the assumption of $3.8 billion of outstanding KCS debt.
“This transaction will be transformative for North America, providing significant positive impacts for our respective employees, customers, communities, and shareholders,” said CP President and Chief Executive Officer Keith Creel. “This will create the first U.S.-Mexico-Canada railroad, bringing together two railroads that have been keenly focused on providing quality service to their customers to unlock the full potential of their networks. CP and KCS have been the two best performing Class 1 railroads for the past three years on a revenue growth basis.”
The only point in which the two railroads have touch rails has been in KCS' home town, Kansas City.
KCS rail lines cover the U.S. Midwest from Kansas City southward. Lines reach from East Texas to the DFW area and into Southeast Texas, South Texas and Mexico. KCS maintains a large Intermodal terminal at Wylie, in the Dallas suburbs and at terminals in Houston (Kendleton) and Laredo.
The CP network runs through the upper U.S. Midwest, the Northeast and throughout Canada.
The merger still makes the KCS-CP network the smallest of six U.S. Class 1 railroads by revenue The company will operate around 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.
The transaction, which had the unanimous support of both boards of directors, valued KCS at $275 per share, representing a 23% premium, based on Friday's closing prices.