Canadian Pacific
CP -1.37%
Railway Ltd. agreed to acquire
Kansas City Southern
KSU 0.38%
in a merger valued at about $25 billion that would create the first freight-rail network linking Mexico, the U.S. and Canada.
The companies said Sunday their boards agreed to a deal that values Kansas City at $275 a share in a combination of cash and stock. Kansas City investors will receive 0.489 of a Canadian Pacific share and $90 in cash for each Kansas City common share held.
If approved by regulators, the deal would unite two of the major North American freight carriers, linking factories and ports in Mexico, farms and plants in the midwestern U.S. and Canada’s ocean ports and energy resources.
The combined company would have about $8.7 billion in annual revenue and employ nearly 20,000 people. It would be run by Canadian Pacific CEO
Keith Creel.
Kansas City Southern is the smallest of the five major freight railroads in the U.S. but plays a key role in U.S.-Mexico trade. Its network mainly runs up the length of Mexico through Texas to its namesake city. The company last year rejected takeover bids worth roughly $20 billion from a group of institutional investors seeking to take it private, The Wall Street Journal reported.
Canadian Pacific has long sought a union with Kansas City to extend its reach into its busy freight routes that stretch from Mexico through southern and midwestern U.S. states. CP’s major rail lines run across Canada, some northern U.S. states and south to Chicago.
The Canadian railway’s leader, Mr. Creel, worked closely with former chief
Hunter Harrison,
who made a number of unsuccessful overtures to buy Kansas City. Mr. Harrison died in 2017 after taking over and revamping another U.S. operator,
CSX Corp.
“This will create the first U.S.-Mexico-Canada railroad,” Mr. Creel said in a statement.
Railway mergers face significant regulatory hurdles in the U.S. Under Mr. Harrison, Canadian Pacific abandoned a $30 billion pursuit of
Norfolk Southern Corp.
in 2016 after regulators expressed concern about reduced competition and potential safety issues.
Kansas City and Canadian Pacific currently have a single point where their two networks connect, in a Kansas City, Mo., facility they jointly operate. The merger could allow trains traveling north and south to avoid having to interchange cars and potentially bypass Chicago, a busy and often congested hub in the U.S. freight system.
The merger partners said the proposed combination wouldn’t reduce choice for customers since there is no overlap between their systems. They said the possibility for single-line routes would shift trucks off U.S. highways, reducing congestion and emissions in the Dallas-to-Chicago corridor.
The freight-rail industry suffered a sharp drop in volume last year as the pandemic slowed trade and temporarily shut many U.S. stores, but volume has bounced back as factories continued to operate and economies recovered. Trade volume has overwhelmed some U.S. ports, causing congestion and delays.
Write to Jacquie McNish at Jacquie.McNish@wsj.com
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