Market Matters Blog

Canadian Pacific Acquisition of KC Southern Now Awaits Transportation Board Approval

Mary Kennedy
By  Mary Kennedy , DTN Basis Analyst
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The merger of the CP and KCS railroads took another step forward Tuesday and now awaits action by the U.S. Surface Transportation Board. (DTN photo by Mary Kennedy)

The stockholders of the Canadian Pacific (CP) and Kansas City Southern (KCS) voted to accept the merger of the two railroads, and shares have been closed into a voting trust as the deal awaits approval from the U.S. Surface Transportation Board (STB). If approved, the railroad would become the CPKC.

On Dec. 8, CP's stockholders "overwhelmingly" voted to approve the issuance of the CP common shares to KCS stockholders in connection with the proposed merger. On Dec. 10, approximately 99.6% of KCS stockholders were in favor of the adoption of the proposed merger agreement.

On Dec. 14, Canadian Pacific announced they completed acquisition of Kansas City Southern. The transaction represents an enterprise value of approximately $31 billion. KCS stockholders will receive 2.884 CP common shares and $90 in cash for each share of KCS common stock held and $37.50 in cash for each share of KCS preferred stock held, noted a news release from CP.

"Today is a historic day for our two iconic companies," said Keith Creel, CP president and CEO. "CPKC will become the backbone connecting our customers to new markets, enhancing competition in the U.S. rail network, and driving economic growth across North America while delivering significant environmental benefits. We are excited to reach this milestone on the path toward creating this unique truly North American railroad."

Patrick J. Ottensmeyer, KCS president and CEO, stated, "As a board and management team, we are proud of the countless contributions and achievements of all those who work for Kansas City Southern. We are excited for the possibilities that will open to us through this combination with CP and we look forward to our next chapter."

Immediately upon the closing of the acquisition, the shares of KCS were placed into a voting trust with Dave Starling, former KCS president and CEO, appointed as the voting trustee. The voting trust, which ensures KCS will operate independently of CP, will remain in effect until the STB issues its decision on the companies' joint railroad control application. Basically, this means the merger is not final until approved by the STB, and both railroads will remain their own entity until that happens.

The STB's approval of CP's control of KCS would create Canadian Pacific Kansas City Limited (CPKC), the only single-line railroad linking the United States, Mexico and Canada. The STB review of CP's proposed control of KCS is expected to be completed in the fourth quarter of 2022.

Expected benefits from the business combination will not be realized until the STB approves CP's control of KCS' railroads. Upon obtaining control approval from the STB, the two companies expect to achieve full integration over the ensuing three years, unlocking the benefits of the combination.

The STB announced on their website Nov. 23 that it accepted for consideration the application filed on Oct. 29, 2021, by the CP and KCS concerning their potential merger. The STB noted, "It finds that the application is complete as it contains all information required by the board's regulations. In today's decision, following public comment, the board adopts a procedural schedule that sets deadlines for comments, responsive applications, final briefs, and other filings."

Notices of intent to participate are due by Dec. 13, 2021. Subsequent deadlines are contained in the decision. The procedural schedule provides that any necessary public hearing will take place after the filing of final briefs, which are due on July 1, 2022. A copy of that decision can be found here:….

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