CP Rail, Kansas City Southern Rail will be merged next month after US approval
MONTREAL – Canadian Pacific Railway Ltd. announced that it will officially merge with Kansas City Southern Railway Co. under the new Canadian Pacific Kansas City banner on April 14.
The US rail regulator this week approved the $31 billion deal, clearing the final hurdle in CP’s bid to buy KCS and build the only railroad that stretches from Canada to the US and Mexico .
“Our new combined railroad will create a truly unique single-line network connecting three nations and immediately bringing new competition to the North American railroad industry when our supply chains have never needed it more badly,” said Keith Creel, chief executive of CP, who will lead the company becomes newly merged company, in a press release on Friday.
April 14 was the earliest possible date for the merger to be completed, based on Wednesday’s decision by the US Surface Transportation Board.
CP’s Nadeem Velani will continue as Chief Financial Officer of the combined company, which will be headquartered in Calgary and will be fully integrated over the next three years.
To “ensure continuity,” KCS CEO Pat Ottensmeyer will advise Creel through the end of 2023, CP said.
Surface Transportation Board Chairman Martin Oberman said Wednesday the acquisition was in line with the public interest. He said that while consolidation in the railroad industry over the past several decades has been a concern, KCS is the smallest of the United States’ six Class I railroads and the combined company will remain so — which carries the risk that the deal weakens competition less seriously.
There are few overlapping routes between the two railroads, Oberman noted. The merger is expected to reduce freight travel time, increase efficiencies and encourage better competition with the other five major US railroads, he said.
It is also expected that approximately 64,000 truckloads will shift from North America’s roads to rail annually.
However, the regulator attached conditions to the deal, including the railway keeping gateways – connecting points between the CPKC system and other railways – open on “commercially reasonable terms” and justifying in writing any fare increase above a certain level movements.
“We acknowledge the thorough and thoughtful consideration that went into the STB’s final decision, including the conditions it imposes, to ensure that the public benefits of the transaction are realized and potential harm avoided,” Creel said in the statement from Friday.
“We intend to participate cooperatively and proactively to support the STB during its oversight process and will comply with the conditions imposed by the STB.”
CP competitor Canadian National Railway Co. had long been in contention for the takeover before CP completed the deal in December 2021. CN had poached KCS from an initial CP bid in May 2021 with a $33.6 billion bid before U.S. regulators rejected CN’s bid in August of this year.
The new Canadian Pacific Kansas City will operate nearly 33,000 kilometers of track and employ nearly 20,000 people.
The network will extend from Vancouver and Saint John, NB to Houston and Mexico City, reaching the Gulf of Mexico and the Pacific Ocean.
This report from The Canadian Press was first published on March 17, 2023.
Companies in this story: (TSX:CP, TSX:CNR)
Christopher Reynolds, The Canadian Press