Canadian Pacific Railway Agrees to Acquire Kansas City Southern

A $25 Billion Tie-Up

Canadian Pacific Railway (CP) has agreed to buy fellow railroad company, Kansas City Southern (KSU) for about $25 billion. The combined company would create the first freight-rail network connecting Canada, the US, and Mexico. The deal will now be subject to a regulatory review which is expected to be finished by mid-2022.

If the deal gains regulatory approval, the new combined company will be called Canadian Pacific Kansas City. It would have almost 20,000 employees and its annual revenue would be about $8.7 billion. The two companies’ leadership say that over three years, the revenue gains and savings resulting from the tie-up would be about $780 million.

Connecting North America by Rail

The three North American countries which would be connected by the new company are reopening after COVID-19 shutdowns at different rates. Demand for rail shipping plummeted last year, but is now starting to recover.

CEO of Kansas City Southern Patrick Ottensmeyer says the US-Mexico-Canada trade agreements which replaced Nafta last July opened opportunities to transport goods through the three countries by rail. It will likely take time for farms, factories, ports, and other parts of the three countries’ economies to make a full recovery from COVID-19-related difficulties. But the two rail companies believe that when they do, there will be a wealth of opportunities to transport goods by rail across North America.

Next Stop: Regulatory Approval

Canadian Pacific has tried to establish a transcontinental rail network through acquisitions before. The company attempted to buy US rail companies in 2014 and 2016, but it faced reluctance from the acquisition targets and pushback from US regulators.

Blackstone Group (BX) attempted to buy Kansas City for $20 billion in September, but the rail operator did not accept the bid. There may still be regulatory obstacles ahead for Kansas City Southern and Canadian Pacific, but so far they are on track for a successful tie-up.

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