Kansas City Southern board agrees to sell to Canadian Pacific for $29 billion
Kansas City Southern will sell to Canadian Pacific in a stock and cash transaction valued at $29 billion dollars, the two companies announced on Sunday.
The boards of both companies have unanimously approved the deal, which still needs approval from the U.S. Surface Transportation Board. If that happens, Sunday’s announcement said the combined rail companies, which will take the name Canadian Pacific Kansas City, would create the first rail network that connects Canada, the United States and Mexico with its 20,000 miles of rail and 20,000 employees.
Global headquarters for Canadian Pacific Kansas City will be in Calgary, while the U.S. headquarters will be in Kansas City at Kansas City Southern’s downtown office building. Canadian Pacific’s current U.S. headquarters is in Minneapolis and will still remain an important base of operations, Sunday’s announcement said.
The two companies’ rail networks connect at Kansas City Terminal Railway.
Canadian Pacific Kansas City will be led by Keith Creel, the current chief executive of Canadian Pacific. The expanded board of directors for Canadian Pacific Kansas City will eventually include four Kansas City Southern directors.
“KCS has long prided itself in being the most customer-friendly transportation provider in North America,” said Kansas City Southern president and chief executive Patrick Ottensmeyer in an announcement of the sale. “In combining with CP, customers will have access to new, single-line transportation services that will provide them with the best value for their transportation dollar and a strong competitive alternative to the larger Class 1s. Our companies’ cultures are aligned and rooted in the highest safety, service and performance standards.”
Kansas City Southern’s pending sale to Canadian Pacific comes less than a year after the rail company rejected a $20 billion takeover offer from private equity firms Blackstone Group and Global Infrastructure Partners at $208 a share.
The Canadian Pacific offer is worth $270 per share. When the transaction closes, Kansas City Southern shareholders will receive $90 in cash for every share. Kansas City Southern shareholders will own about 25% of Canadian Pacific’s outstanding common shares.
Canadian Pacific is assuming about $3.8 billion in Kansas City Southern debt in the transaction.
A combined Kansas City Southern-Canadian Pacific company would remain the smallest the six Class 1 rail networks in North America by revenue — an estimated $8.7 billion based on 2020 figures — but one that the two companies say should be more competitive.
“Importantly, KCS employees will benefit from being part of a truly North American continental enterprise, which creates a strong platform for revenue growth, capital investment, and future job creation,” Ottensmeyer said in a statement. “Customers, labor partners, and shareholders will all benefit from the inherent strengths of this combination, including attractive synergies and complementary routes.”
The deal would also mean another longstanding company with deep Kansas City ties gets purchased by a foreign concern.
Waddell & Reed late last year announced that Australian-based Macquarie would buy the Overland Park financial services firm, a transaction that ultimately thwarted Waddell & Reed’s planned move to a halfway-built new office tower in downtown Kansas City.
Kansas City Southern got its start in 1887 when Arthur Stilwell founded what was then known as Kansas City Suburban Belt Railway.
Through a series of acquisitions over the next 120 years, Kansas City Southern expanded its rail network into Mexico and Panama.
Kansas City Southern’s top executives over the years have figured into the region’s civic affairs. William William Dermaus III, Micheal Haverty and Warren Erdman are among those who have helped shape Kansas City’s broader civic pursuits.
This story was originally published March 21, 2021 at 8:45 AM.
