The Surface Transportation Board (STB) has received an application jointly filed by Canadian Pacific Railway Limited (CP) and Kansas City Southern (KCS) that would create a single-line railroad linking the U.S., Canada and Mexico called Canadian Pacific Kansas City (CPKC).
“We are excited to file our joint application for this unique, pro-competitive combination and once-in-a-lifetime partnership,” said Keith Creel, CP President and Chief Executive Officer. “CPKC is an extraordinary opportunity to inject new competition and new capacity into the U.S. rail network, further USMCA trade flows, improve safety, grow employment and facilitate new passenger services. We are ready to work with the STB as the board gives this transaction a thorough and appropriate review, and ultimately look forward to approval so we can get to work delivering these benefits to the North American economy.”
"We are pleased to submit this application together and take another important step toward bringing to fruition this historic opportunity for CP and KCS,” said Patrick J. Ottensmeyer, KCS President and Chief Executive Officer. “In fierce competition with other railroads, trucks and other modes of transportation, CPKC will provide new routes, reach broader markets and create expanded shipping opportunities for customers. This combination will also unlock new infrastructure investment and environmentally-friendly supply chain transportation options that will grow the USMCA economy.”
Joining of the two railroads would give Canadian Pacific direct entry into North and South Texas for the first time and extend its reach into Mexico. The application to the STB provides an overview of the proposed operational integration of the CP and KCS rail networks, the impact of that consolidation on the companies’ finances and labor needs, and the anticipated competitive and other benefits that will flow from providing shippers with new transportation alternatives.
The new CPKC would, according to a news release
Create more than 1,000 direct new jobs system-wide, including approximately 760 in the United States, over the next three years brought about by expanded rail operations across the combined network. Capital investments in new infrastructure of more than USD$275 million over the next three years to improve rail safety and capacity of the core north-south CPKC main line between Louisiana and the Upper Midwest. Avoidance of more than 1.5 million tons of greenhouse gas (GHG) emissions within five years due to the improved efficiency of CPKC versus current operations. Diverting 64,000 long-haul truck shipments to rail annually with new CPKC intermodal services, eliminating another 1.3 million tons of GHG emissions over the next two decades, saving $750 million in highway maintenance costs.
The joint control application reiterates the applicants’ commitment to keep all existing freight rail gateways open on commercially reasonable terms, including the Laredo gateway between the United States and Mexico, and shows how customers will not lose competitive routings because no new regulatory “bottlenecks” are being created. It also describes how the combined company will compete aggressively to attract traffic to its network via new single-line lanes between Canada, the Upper Midwest and the Gulf Coast, Texas, and Mexico.
More than 960 stakeholders, including more than 440 shippers, 186 smaller railroads, dozens of public officials, eight major ports, railroad labor unions representing both CP and KCS employees and 289 rail industry suppliers have written letters to the STB supporting CP’s proposed combination with KCS.
CP has agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately $31 billion, which includes the assumption of $3.8 billion of outstanding KCS debt. The transaction, which has the unanimous support of both boards of directors, values KCS at $300 per share, representing a 34 percent premium, based on the CP closing price on Aug. 9, 2021, the date prior to which CP submitted a revised offer to acquire KCS, and KCS’ unaffected closing price on March 19, 2021.
The transaction is subject to approval by shareholders of each company along with satisfaction of customary closing conditions, including Mexican regulatory approvals. Shareholders are expected to vote on the transaction later this year.
CP’s ultimate acquisition of control of KCS’ U.S. railways is subject to the approval of the STB.
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.