Canadian Pacific Railway Ltd has revealed it will be purchasing Kansas City Southern for US$25 billion, to create the first ever rail network that connects Canada, the US, and Mexico.
Following a new trade alliance between the three countries, the deal will allow CP Rail access to the extensive Midwestern rail network that connects to the Gulf of Mexico and beyond. Once approved, the rail network will sprawl over 20,000 miles, and will be the largest Canadian purchase of a US asset since 2016. It will also provide a much-needed transportation solution for producers looking to bring manufacturing back to North America, especially after the pandemic uncovered risks from reliance on oversees supply chains.
The proposed takeover, which was first reported by the Financial Times, is still subject to regulatory approval by the Committee on Foreign Investment in the United States, as well as the US Surface Transportation Board. As per the deal, CP Rail will pay $275, as well as $90 in cash for each KCS common share. The deal values each KCS share at a 23% premium following Friday’s closing price of $224.16 per share. In order to pay for the transaction, the Calgary-based company will raise $8.6 billion in debt, and issue over 44.5 million new shares.
The success of KCS has been strongly tied to trade alliances between Canada, the US, and Mexico, especially since the rail company’s main routes link the three countries together. In addition, KCS also has large-scale operations in Mexico, and owns a 50% stake in the Panama Canal Railway Company.
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Information for this briefing was found via Financial Times. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
