Merged railroad will span 3 nations

Canadian Pacific Railway seals $27B deal to buy Kansas City Southern.

After months of twists and turns, Canadian Pacific Railway Ltd. sealed a $27 billion deal to acquire Kansas City Southern, claiming a prize that would create the first railroad spanning the U.S., Canada and Mexico.

Kansas City Southern terminated a $30 billion agreement with Canadian National Railway Co. that had run aground after U.S. regulators rejected a crucial provision.

“We’re increasing competition, not reducing competition. Shippers have more options. It’s pro-growth. It’s pro-employee,” Canadian Pacific Chief Executive Officer Keith Creel said in an interview Wednesday. He is slated to have the same post at the merged carrier.

The companies valued the cash-and-stock deal at $31 billion, including the assumption of debt. The merger still needs approval from shareholders, Mexican regulators and the U.S. Surface Transportation Board.

With the combination, Canadian Pacific would become the first railroad to operate in Can

ada, the U.S. and Mexico, where Kansas City Southern gets about half its revenue. The Canadian carrier will enlarge its network by 50% to 20,000 miles of track from Vancouver to Veracruz, Mexico.

Canadian Pacific had reached a $25 billion deal for Kansas City Southern in March, only to have it snatched away by Canadian National a couple of months later. Canadian Pacific sweetened its offer to $27 billion in August but was rejected.

That offer became the heavy favorite, however, after the Surface Transportation Board rejected Canadian National’s proposal for a voting trust to buy out Kansas City Southern’s shareholders while full approval was pending. The U.S. carrier had said it wouldn’t entertain any deal that lacked such a mechanism, which the STB had already approved for Canadian Pacific.

Kansas City Southern responded by deeming Canadian Pacific’s proposal superior and giving its larger rival five business days to improve its proposal. Canadian National declined to do so, citing regulatory hurdles.

Kansas City Southern rose almost 1% to $282.40 at 11:34 a.m. in New York. Through Tuesday, the stock had climbed 25% since Canadian Pacific’s initial deal was first reported in March. Canadian Pacific rose less than 1% Wednesday to C$87.13 in Toronto, while Canadian National advanced 3.5% to $150.80.

Canadian National won’t walk away empty-handed. Kansas City Southern is paying its jilted suitor a breakup fee of $700 million for ending their agreement and will refund the Canadian carrier an additional $700 million that it had paid the U.S. railroad for killing the spring Canadian Pacific deal.

CHRISTINNE MUSCHI/BLOOMBERG 2021 Kansas City Southern terminated a $30B deal with Canadian National Railway Co. that ran aground after U.S. regulators rejected a key provision.