$ 29 billion railroad merger to connect US, Mexico and Canada

Canada’s Pacific and Kansas City Southern on Sunday announced plans to combine in a $ 29 billion deal to build the first rail network connecting the United States, Mexico and Canada.

This is President Donald J. There is an attempt to capitalize on the trade flows that run through the three countries after being signed by Trump. United States-Mexico-Canada Agreement In law last year. It also bets on the strength of the industrial economy as the United States rebels from the epidemic.

The Canadian Pacific connects major ports on the east and west coast between the United States and Canada, while Kansas City connects the southern United States, Mexico, and Panama. The two connect at one point: Kansas City, Mo. A joint facility in where Kansas City Southern is located.

In an interview, Kansas City Southern CEO Patrick J. “The deal has many strategic advantages so far,” Otensmeyer said. “Our board has really seen the value in putting these two companies together.”

The combined company, Canadian Pacific Kansas City, will have its global headquarters in Calgary, Alberta, while Kansas City will serve as its US headquarters. It will operate about 20,000 miles of rail and generate sales of approximately $ 8.7 billion. Canadian Pacific chief executive Keith Creel will oversee the new unit.

The deal is in Kansas City Southern at $ 275 per share, representing a 23 percent premium to its closing price on Friday. Investors will receive 0.489 of one Canadian Pacific share and $ 90 cash for each Kansas City common stock.

This is also a significant increase from the report $ 208 share offer from Blackstone Group, A private equity firm that Kansas City Southern reprimanded last year. Kansas City shares have increased 12 percent year-over-year, while Canadian Pacific shares have climbed nearly 10 percent.

The board of the two companies unanimously approved the cash and stock deal, which is expected to close by mid-2022, subject to customary approval.

The railroad industry can be seen as the bellwether of industrial activity; It expects to benefit from a growing US economy as it emerges from the epidemic. The federal reserve has Indicated optimism Economic outlook of the nation and for President Biden $ 1.9 trillion spending bill signed into law this month.

Investors in Canada’s Pacific and Kansas City Southern are not alone in their optimism for the industry’s outlook. Warren Buffett, who owns the BNSF Railway near Berkshire Hathaway, recently boycotted the price he saw in the US rail industry. In my annual letter.

On Sunday, railway officials highlighted other opportunities he saw in the deal. Mr. Creel called the merger “a compelling opportunity to take trucks off the road” when the United States focuses on a transition to a greener economy. It also reduces risk in the global supply chain following an epidemic that exposes its weaknesses, Mr. Ottenmayer said.

The deal requires approval from the Surface Transport Board, a division of the Department of Transportation, which is the first accepted Concerns about rail consolidation have increased Service Issues for Shippers. Canadian Pacific’s previous attempts to acquire American railroads have failed due to such concerns. which consists of Interaction with CSX Corporation in 2014 And Norfolk Southern in 2016. And the Biden administration is already Indicated a strict stance on the antitrust investigation.

Due to its size, Kansas City is exempt from Southern Guidelines were introduced in 2001 to tighten scrutiny in the industry. The combined company will be the smallest of the remaining six largest freight railroads still operating in the United States. There is no overlap between the two railroads, Mr. Creel and Mr. Otensmeyer said – and, in some cases, the transaction will create new markets.

“There are zero other deals that represent the uniqueness of the deal,” Mr. Creel said.

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