CP’s Creel: KCS merger effort has picked up where it left off
9/20/2021
By Jeff Stagl, Managing Editor
On Sept. 16, the leaders of on-again merger partners Canadian Pacific and Kansas City Southern met in Kansas City, Missouri, to ceremoniously sign their new marriage agreement and kickstart their renewed effort to obtain Surface Transportation Board (STB) approval to create Canadian Pacific Kansas City (CPKC).
The Class Is had forged a merger agreement back in March and shortly after obtained STB approval to form a voting trust for the transaction. KCS then pulled out of the pact in April and paired up with CN to pursue a merger, which the board essentially killed on Aug. 31 by unanimously rejecting their proposed voting trust. That opened the door for CP-KCS effort No. 2.
“It’s been quite a journey. But we stuck with the facts. This is an ideal end-to-end combination that creates the first U.S.-Mexico-Canada rail network with new single-line offerings and provides new competitive transportation options,” CP President and Chief Executive Officer Keith Creel said during a Sept. 17 phone interview. “Now, we have picked up where we left off. We are getting back to work.”
Under the new merger agreement, CP would acquire KCS in a stock and cash transaction representing an enterprise value of about $31 billion, including the assumption of $3.8 billion of outstanding KCS debt. The transaction has the unanimous support of both Class Is’ boards, values KCS at $300 per share and represents a 34% premium based on current stock prices.
CPKC would remain the smallest of six U.S. Class Is, operate a 20,000-mile network, employ 20,000 people and generate $8.7 billion in annual revenue.
“The regulator is the regulator. They are in charge, and we’re respectful of that,” Creel says of the STB. Canadian PacificThe merger would offer stability in the rail industry, with two Class Is in the north, two east of the Mississippi River and two west of the river, says Creel, who would become CEO of CPKC if the merger is approved.
“It will help the rail industry grow and help the environment,” he said.
The new merger agreement is essentially the same as the first one, said Creel. The two Class Is kept the docket number alive at the STB so they didn’t need to restart or repeat certain application processes.
The plan now is to submit the merger application to the STB in mid-October. The board then would need about 10 months or more to review it.
“The regulator is the regulator. They are in charge, and we’re respectful of that,” said Creel. “We stick with the facts.”
The STB likely will issue a decision in October or November 2022, with the merger possibly reaching completion by 2022’s end, he says. The two railroads then would need the ensuing three years to become fully integrated. In the meantime, CP and KCS would close into a voting trust, which is expected to occur sometime in first-quarter 2022.
For now, the two railroads are working with interchange partners and shippers to address any concerns or issues associated with CPKC.
“We will not be predatory or use any market leverage. We’re not going to behave in a predatory manner that creates risk,” said Creel. “We want to work with all the parties involved.”
