CN, KCS file merger request

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CALGARY, ALBERTA, CANADA – Canadian Pacific Railway Ltd. (CP) and Kansas City Southern (KCS) have jointly filed an application for railway control with the Surface Transportation Board (STB) regarding the proposed transaction to create the Canadian Pacific Kansas City (CPKC), the only single line railway connecting the United States, Mexico and Canada.

“We are delighted to file our joint application for this unique, pro-competitive combination and once-in-a-lifetime partnership,” said Keith Creel, President and CEO of CP. “The CPKC is an extraordinary opportunity to inject new competition and new capacity into the US rail network, to foster USMCA trade flows, to improve safety, to develop employment and to facilitate new services.” passengers. We stand ready to work with the STB as the Board of Directors conducts a thorough and appropriate review of this transaction, and look forward to the approval so that we can get down to work to deliver these benefits to the northern economy. -american. ”

Patrick J. Ottensmeyer, Chairman and CEO of KCS, said the filing of the joint application brings the two railways closer to realizing a “historic opportunity”.

“In fierce competition with other railways, trucks and other modes of transportation, CPKC will provide new routes, reach larger markets and create expanded shipping opportunities for customers,” he said. “This combination will also unlock new investments in environmentally friendly infrastructure and supply chain transportation options that will grow the USMCA economy.”

Earlier this year, it emerged that a merger would take place between KCS and CP’s rival Canadian National (CN) after CN submitted a much higher bid than CP for KCS. But in September, CP increased its bid to $ 31 billion, still short of CN’s $ 33.6 billion bid, but enough to convince KCS to accept CP’s proposal.

The comprehensive monitoring application provides an overview of the proposed operational integration of the CP and KCS rail networks, the impact of this consolidation on the financial and workforce needs of companies, and the competitive and other advantages expected. which will result from the provision of new means of transport to shippers. alternatives. The information in the dossier describes the public and customer benefits that a CP-KCS combination would bring, including more efficient north-south trade routes to support the interconnected supply chains of the United States, Mexico and the United States. Canada.

The companies said that in addition to the transaction’s central basis for boosting transportation competition and supporting economic growth in North America, the CP-KCS combination will generate many other public benefits, including:

  • The creation of more than 1,000 new direct jobs system-wide, including approximately 760 in the United States, over the next three years, through the expansion of rail operations across the combined network.
  • Capital investments in new infrastructure of more than $ 275 million over the next three years to improve rail safety and capacity on the CPKC North-South Mainline between Louisiana and the Upper Midwest.
  • Avoidance of over 1.5 million tonnes of greenhouse gas (GHG) emissions in five years by improving the efficiency of CPKC compared to current operations.
  • Divert 64,000 long-haul truck shipments to rail annually with new CPKC intermodal services, eliminating an additional 1.3 million tonnes of GHG emissions over the next two decades, saving $ 750 million in maintenance costs road.

Rail customers will not experience a reduction in independent rail choices as a result of the CP-KCS combination, the companies said. The request for joint control 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 routes because no new regulatory “bottleneck” is being created. It also describes how the combined company will compete aggressively to attract traffic to its network via new single-line routes between Canada, the Upper Midwest and the Gulf Coast, Texas and Mexico.

Over 960 stakeholders, including over 440 shippers, 186 small railways, dozens of government officials, eight major ports, railway unions representing both CP and KCS employees, and 289 suppliers to the rail industry wrote letters to STB supporting CP’s proposed merger with KCS. .

CP has agreed to acquire KCS in a stock and cash transaction with an enterprise value of approximately $ 31 billion, which includes the assumption of $ 3.8 billion of the outstanding debt of KCS. The transaction, which enjoys unanimous support from both boards of directors, values ​​KCS at $ 300 per share, or a premium of 34%, based on CP’s closing price on August 9, 2021, the date on which CP submitted. a revised offer. to acquire KCS, and the unaffected closing price of KCS on March 19.

The transaction is subject to the approval of the shareholders of each company as well as the satisfaction of customary closing conditions, including Mexican regulatory approvals. Shareholders are expected to vote on the transaction later this year.

While remaining the smallest of the six U.S. Class 1 railways in terms of revenue, the combined company would have a much larger and more competitive network, operating approximately 20,000 miles of track, employing nearly 20,000 people and generating total revenues of around $ 8.7 billion based on 2,020 real incomes, the companies said.


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