CP Rail completes acquisition of Kansas City Southern, with integration pending U.S. regulator approval

Canadian Pacific Railway is the new owner of Kansas City Southern as of December 14, 2021, although KCS must continue to operate independently until the U.S. Surface Transportation Board approves the North American railway marriage.

Upon closing of the US$31 billion deal on Tuesday, the shares of KCS were placed into a voting trust, and they will remain there until the U.S. regulator issues its decision on the companies’ railroad control application, which is expected to be completed in the fourth quarter of 2022.

At that point, both companies would combine to be known as “Canadian Pacific Kansas City Limited,” or CPKC, creating the only single-line railroad linking the United States, Mexico, and Canada.

“Today is a historic day for our two iconic companies,” said Keith Creel, CP President and CEO, in a statement upon closing the agreement. “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.”

Shareholders for both railways approved the deal last week.

CP says it expects to achieve full integration with KCS within three years of the STB approving CP’s control of KCS’ rail lines.

The Canadian railway battle for Kansas City Southern — a timeline:

March 21 — Canadian Pacific Railway (CP) announces a US$25 billion stock and cash agreement to acquire Kansas City Southern (KCS) railway and create the first rail freight network to link Canada, the U.S., and Mexico. The CP and KCS rail networks meet in Kansas City, but do not overlap anywhere. The railway would be known as Canadian Pacific Kansas City or CPKC.

April 20 — Canadian National Railway (CN) announces a premium bid to acquire Kansas City Southern that values KCS at over US$29 billion. CP Rail CEO Keith Creel says his railway will not get into a bidding war for KCS.

May 6 — The U.S. Surface Transportation Board (STB) approves CP Rail’s plan to use a voting trust to control KCS’ assets while the deal is finalized. The STB also confirms KCS is exempt from rail merger rules implemented in 2001, since the CP and KCS rail networks do not overlap.

May 14 — The KCS board of directors says it views CN Rail’s merger proposal as the superior offer, and terminates the March 21 agreement with CP. KCS pays CP a $700 million break-up fee, which CN covers.

July 9 — U.S. President Joe Biden issues an executive order focused at increasing competition among railways. It also requires freight railroads to provide rights of way to passenger rail, increasing regulatory uncertainty around the CN-KCS deal.

August 10 — CP Rail raises its offer for KCS to $27.2 billion.

August 31 — The STB unanimously rejects the application by CN and KCS to use a joint voting trust, saying the railways have not shown that it is in the public interest, forcing CN to rework its bid. CP sets a September 12 deadline on its offer.

Early September — CN’s executive faces pressure from major shareholders to drop its pursuit of KCS.

September 12 — KCS board of directors deems CP’s $27.2 billion offer as superior, given the STB ruling against the CN proposal.

September 15 — KCS and CP sign merger agreement, after CN waives its opportunity to renegotiate terms. KCS must now pay CN $700 million break-up fee, plus reimburse CN for covering earlier termination fee paid to CP. CP to cover both payments.

Early December — After receiving the relevant regulatory approvals in Canada, the U.S., and Mexico, shareholders for both CP and KCS vote in favour of the deal.

December 14 — CP closes its acquisition of KCS into a voting trust in a deal valued at US$31 billion, including the assumption of US$3.8 billion of debt. Integration of the two companies to form CPKC still depends on STB approval expected in late 2022.