Canadian Pacific to Buy Kansas City Southern in $25 Bln Railway Bet on Trade

Canadian Pacific to Buy Kansas City Southern in $25 Bln Railway Bet on Trade

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Baabda, Lebanon: (World View Media, Reuters)

Canadian Pacific Railway agreed on Sunday (March 21) to acquire Kansas City Southern a $25 billion cash-and-stock deal to create the first railway spanning the United States, Mexico and Canada, standing to benefit from a pick-up in trade.

It would be the largest ever combination of North American railways by transaction value. It comes amid a recovery in supply chains that were disrupted by the COVID-19 pandemic, and follows the ratification of the US-Mexico-Canada Agreement (USMCA) last year that removed the threat of trade tensions that had escalated under former U.S. President Donald Trump.

The combination needs the approval of the U.S. Surface Transportation Board (STB). The companies expressed confidence this would happen by the middle of 2022, given that the deal would unite the smallest of the seven so-called Class I railways in the United States, which meet in Kansas City and have no overlap in their routes. The combined railway would still be smaller than the remaining five Class I railways.

There is a $1 billion reverse breakup fee that Canadian Pacific would have to pay Kansas City Southern if it cannot complete the formation of the trust, the source added.

Shareholders of Kansas City Southern will receive 0.489 of a Canadian Pacific share and $90 in cash for each Kansas City Southern common share held, valuing Kansas City Southern at $275 per share, a 23% premium to Friday’s (March 19) closing price, the companies said in a joint statement. Including debt, the deal is valued at $29 billion.

Kansas City Southern shareholders are expected to own 25% of Canadian Pacific’s outstanding common shares, the companies said.

Canadian Pacific said it will issue 44.5 million shares and raise about $8.6 billion in debt to fund the transaction.

It is the top M&A deal announced thus far in 2021.

While it is the biggest ever involving two rail companies, it ranks behind Berkshire Hathaway’s purchase of BNSF in 2010 for $26.4 billion.

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