(Reuters) – Canadian Pacific Railway Ltd said on Sunday it agreed to buy Kansas City Southern for $ 25 billion in a cash-and-share deal to create the first rail network connecting the United States, Mexico and Canada.
Kansas City Southern shareholders will receive 0.489 of a Canadian Pacific share and $ 90 in cash for each KCS common share they own, the companies said in a joint statement.
The deal, which has an enterprise value of $ 29 billion including debt, values Kansas City Southern at $ 275 per share, a 23% premium over Friday’s closing price of $ 224.16.
“This transaction will be transformative for North America, providing significant positive impacts for our respective employees, customers, communities and shareholders,” Canadian Pacific Chief Executive Officer Keith Creel said in the statement.
“This will create the first railroad between the United States, Mexico and Canada.”
Creel will continue to serve as CEO of the combined company, which will be based in Calgary, the statement said.
The deal comes amid expectations of a rebound in trade between the United States and Mexico after Joe Biden replaced Donald Trump as president of the United States.
The Kansas City Southern board approved the offer and the two companies notified the US Surface Transportation Board to seek the approval required by the agency.
Kansas City Southern shareholders are expected to own 25% of Canadian Pacific’s outstanding common stock after the deal, the companies said.
Canadian Pacific said it will issue 44.5 million new shares and raise about $ 8.6 billion in debt to fund the transaction.
The Financial Times first reported on the deal on Sunday.
Calgary-based Canadian Pacific is Canada’s second largest rail operator, behind Canadian National Railway Co Ltd, with a market value of $ 50.6 billion.
It owns and operates a transcontinental freight railroad in Canada and the United States. Grain transportation is the company’s largest revenue driver, accounting for about 58% of bulk revenue and about 24% of total freight revenue in 2020.
Kansas City Southern has national and international rail operations in North America, focused on the north-south freight corridor that connects the commercial and industrial markets in the central United States with the industrial cities of Mexico.
Attempts by Canadian rail operators to buy US rail companies have met with limited success due to antitrust concerns.
Canadian Pacific’s latest attempt to expand its business in the US comes after it abandoned a hostile $ 28.4 billion bid for Norfolk Southern Corp in April 2016. Canadian Pacific’s merger talks with CSX Corp , which owns a large network in the eastern United States, failed in 2014.
An offer from the Canadian National Railway Co, the nation’s largest railroad, to buy Warren Buffett’s Burlington Northern Santa Fe was blocked by US antitrust authorities in 1999-2000.
Report from Nandakumar D and Ann Maria Shibu in Bengaluru; Denny Thomas in Toronto; Edited by William Mallard, Pravin Char, and David Goodman