After ‘twists and turns,’ Kansas City Southern agrees to merge with Canadian railroad
After a months-long bidding war, Kansas City Southern is back where it started with plans to merge with the Canadian Pacific railroad.
On Wednesday, the two firms celebrated the $31 billion merger, which would create the first railroad that spans Canada, the United States and Mexico.
The two railroads originally announced merger plans in March. But another Canadian railroad, Canadian National, entered the fray to buy Kansas City Southern. The company accepted Canadian National’s bid in May.
On Wednesday, after a protracted back-and-forth, Canadian National dropped out of the bidding war. And Kansas City Southern announced it had agreed to a $31 billion sale to Canadian Pacific.
“We had a couple of interesting twists and turns in the journey,” said Kansas City Southern president and chief executive Patrick Ottensmeyer. “But for a lot of reasons we’re back to where we were in March and still feel that a combination with KCS and CP still makes sense.”
The merger will still face regulatory scrutiny, but leaders of both companies believe it will be approved. Canadian Pacific president and chief executive Keith Creel said the merger could be completed sometime in the second half of 2022. While mergers often seek cost savings by eliminating duplicate corporate jobs, both railroads stressed that the move would be good for employees.
Once merged, the company will be called Canadian Pacific Kansas City. It will retain global headquarters in Calgary, while its U.S. headquarters will stay in Kansas City at Kansas City Southern’s downtown office building.
Kansas City Southern employs about 7,000 workers, while Canadian Pacific employs about 12,500.
“The way I see this and what it means for the KCS employees is a bright future,” Creel said. “You’re going to see more jobs, you’re going to see job security. You’re going to see a city that forever will be an integral piece of this network.”
The merged company will remain the smallest of the six U.S. Class 1 railroads by revenue. But officials say the combination will create a much larger and more competitive network with about 20,000 miles of rail and revenues of some $8.7 billion.
Canadian Pacific has not made substantial changes to the terms of its original agreement in March, though the bidding war did drive up the purchase price.
Canadian National’s bid was $33.6 billion, but regulators rejected a key part of the offer last month.
Canadian Pacific has increased its initial bid of about $29 billion to the current agreed upon price of about $31 billion, which represents a mix of cash and stock.
“Here we are kind of back to where we were,” Ottensmeyer said. “This combination made tremendous sense before. It makes tremendous sense now.”
