CP/KCS: Mega-merger Will Serve Three North American Coasts

Combined Network Map: Creating the First U.S.-Mexico-Canada Rail Network (CNW Group/Canadian Pacific)

21.March, Calgary AB and Kansas City MO – Canadian Pacific Railway and Kansas City Southern entered into a merger agreement, wherein CP agrees to acquire KCS for stock and cash valued at approximately USD$29 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 $275 per share, representing a 23% premium2, based on the CP and KCS closing prices on March 19, 2021 (and $270 per share, representing a 26% premium3, based on the respective CP and KCS 30-day volume weighted average prices).

Following the closing into a voting trust, common shareholders of KCS will receive 0.489 of a CP share and $90 in cash for each KCS common share held.

Following final approval from the Surface Transportation Board (“STB”), the transaction will combine the two railroads to create the first rail network connecting the U.S., Mexico, and Canada. Joining seamlessly in Kansas City, Mo., in America’s heartland, CP and KCS together will connect customers via single-network transportation offerings between points on CP’s system throughout Canada, the U.S. Midwest, and the U.S. Northeast and points on KCS’ system throughout Mexico and the South Central U.S.

The combined network’s new single-line offerings will deliver dramatically expanded market reach for customers served by CP and KCS, provide new competitive transportation service options, and support North American economic growth. The transaction is also expected to create jobs across the combined network. Additionally, efficiency and service improvements are expected to achieve meaningful environmental benefits.

While remaining the smallest of six U.S. Class 1 railroads by revenue, the combined company will be a much larger and more competitive network, operating 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.

“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.”