From the Editor: CP-KCS — a mega merger made to order

On March 21, Canadian Pacific Railway Ltd. and Kansas City Southern announced they’d entered into a merger agreement under which CP had agreed to acquire KCS stock in a cash transaction worth $29 billion. The deal includes the assumption of about $3.8 billion of outstanding KCS debt.  

If the Surface Transportation Board (STB) approves the pact, CP would acquire control of KCS, and current CP President and Chief Executive Officer Keith Creel would lead the combined company, which would be dubbed Canadian Pacific Kansas City.

The global headquarters would be in Calgary, Alberta, with the U.S. headquarters in Kansas City, Missouri. If approved by the STB, the transaction would be completed by mid-2022, CP-KCS execs say.

The largest industry deal in decades, CP-KCS would create a “compelling U.S.-Mexico-Canada rail network,” according to a Baird Equity Research report.

My friend and colleague Tony Hatch, who alerted me to the deal the night before it was officially announced, believes the merger will be approved. As the independent transportation analyst put it in a tweet that night: “STB approval is likely as there is little to no overlap … and this is the only merger that — by itself as a standalone — might not trigger full rail consolidation, as any other pairing likely would.”

A couple days after the deal was announced, I interviewed Tony to get his perspective — the video conversation is posted on our subscription offering RailPrime here: https://www.progressiverailroading.com/RailPrime/details/Tony-Hatch-on-the-proposed-CP-KCS-merger--63055"

In a March 31 email to clients, Hatch reiterated his sentiments, noting he is “positively inclined toward the deal” and believes it will pass muster. He also said it wouldn’t be a flashpoint for “rail consoli-meggedon.” 

“There will be concessions and not all of the long-haul ‘looks good on the map’ opportunities will pan out,” but the synergies CP-KCS execs project will prove conservative, he wrote.

I agree with Tony. CP-KCS appears to be a mega merger made to order. But we’ll cover the deal as the events surrounding it unfold. For example, in our May issue cover story, Managing Editor Jeff Stagl will share how an array of analysts and observers view the proposed combination, including its potential benefits to the two Class Is and ramifications for the North American rail industry.