CP Rail (CP) to buy Kansas City Southern (KSU) for $ 25 billion

A Canadian Pacific Railway Ltd. train carrying oil departs from Hardisty, Alberta, Canada.

Photographer: Brett Gundlock / Bloomberg

Canadian Pacific Railway Ltd. agreed to purchase Kansas City Southern for $ 25 billion, seeking to create a 20,000-mile rail network linking the United States, Mexico, and Canada.

Kansas City investors will receive 0.489 of a CP share and $ 90 in cash for each share they own, valuing the shares at $ 275 each, 23% higher than Friday’s record close, according to a Statement from both companies on Sunday.

The transaction gives CP access to the Kansas City, Missouri-based company’s extensive Midwest rail network, connecting farms in Kansas and Missouri with ports along the Gulf of Mexico. It would also catch up with Mexico, which accounted for nearly half of Kansas City Southern’s revenue last year, and create the only network that crosses all three North American countries.

“This transaction will be transformative for North America,” said CP President and CEO Keith Creel.

Creel will be the CEO of the new company, which will be based in Calgary, and is expected to remain in command until at least early 2026, according to an independent report. statement. The combined entity, to be called Canadian Pacific Kansas City, or CPKC, will have revenues of about $ 8.7 billion and nearly 20,000 employees.

Commercial game

The deal comes as trade between the three nations is expected to rebound under the Biden administration. Just days after his inauguration, US President Joe Biden spoke with the leaders of Canada and Mexico, his first calls with foreign counterparts, where issues from trade to climate change were discussed.

Canada to Mexico Rail

Mexico is a key supplier of automobiles, electronics and food and a major customer of cereals, fuels and consumer goods, ties that will likely be strengthened with the approval in July of the trade pact between the United States, Mexico and Canada.

Kansas City’s unique network linking Mexico’s largest industrial cities and ports to the U.S. Midwest would also benefit if the coronavirus pandemic and frayed U.S.-China ties spur businesses to move lower-wage manufacturing from Asia to North America.

As part of the transaction, CP will issue 44.5 million new shares, which will be financed with available cash and around $ 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 backlog after synergies are fully realized thereafter.

Kansas City has been an acquisition target before. In September, Dow Jones reported that the company rejected a $ 20 billion offer from Blackstone Group Inc. and Global Infrastructure Partners.

(Add background to cover the third paragraph.)


Source link