CP, KCS reach second merger agreement

Canadian Pacific and Kansas City Southern today announced they have entered into a second merger agreement, under which CP has agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately $31 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 $300 per share, representing a 34% premium, based on the CP closing price on Aug. 9, 2021, the date prior to which CP submitted a revised offer to acquire KCS, and KCS' unaffected closing price on March 19.

"Our path to this historic agreement only reinforces our conviction in this once-in-a-lifetime partnership," said CP President and Chief Executive Officer Keith Creel in a press release. "We are excited to get to work bringing these two railroads together."

By combining, the two Class Is will unlock the full potential of their networks and employees, Creel said.

"This perfect end-to-end combination creates the first U.S.-Mexico-Canada rail network with new single-line offerings that will deliver dramatically expanded market reach for CP and KCS customers, provide new competitive transportation options and support North American economic growth," he added.

While remaining the smallest of six U.S. Class Is by revenue, the combined company would have a much larger and more competitive network, operating approximately 20,000 miles of rail, employing close to 20,000 people, and generating total revenue of about $8.7 billion based on 2020 actual revenue. The two Class Is previously forged a merger agreement in late March.

The CP-KCS combination is expected to create jobs across the joined network. Additionally, the companies expect efficiency and service improvements to achieve meaningful environmental benefits, officials from both companies said.

"We are glad to be partnering with CP to create a railroad that is able to compete by providing the best value for the transportation dollar," said KCS President and Chief Executive Officer Patrick Ottensmeyer. "The CP-KCS combination will not only benefit customers, labor partners, and shareholders through new, single-line transportation services, attractive synergies and complementary routes, it will also benefit KCS and our employees by enabling us to become part of a growing and truly North American continental enterprise."