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On Tuesday, January 7, 2020, a Kansas City Southern (KSC) Railway locomotive moves through Knoche Yard in Kansas City, Missouri, United States.
Bloomberg/Whitney Curtis
Canadian Pacific Railway is a railway in Canada.
is accumulating
Southern Kansas City
for $29 billion, including a $3.8 billion debt assumption In Monday trading, investors are likely to bid up all railroad stocks. The merger would result in the creation of the first rail network connecting Canada, the United States, and Mexico. Nearly a year after the new United States-Mexico-Canada Agreement, or USMCA, took effect, replacing the North American Free Commerce Agreement, or Nafta, the accord is mostly a gamble on an escalation in North American trade.
“The new competition we will inject into the North American transportation market cannot come soon enough, as the new USMCA Trade Agreement between these three countries makes the efficient integration of the continent’s supply chains more important than ever before,” said Keith Creel, president and CEO of the North American Transportation Research Institute.
Canadian Pacific Railway is a railway in Canada.
said in a statement released on Sunday announcing the agreement. Creel will take over as the combined company’s CEO. As the global economy awakens from its Covid-induced slumber, railroads, like other industrial corporations, have been outperforming the rest of the market. The S&P 500’s Industrial businesses, for example, have up approximately 10% in the last three months. Over the same time period, the index’s technical components have remained unchanged. It’s a stock and cash transaction. Shareholders of Kansas City Southern (KSU) will receive $90 in addition to 0.489 shares of Canadian Pacific (CP) for each Kansas City Southern share they own. Based on CP’s Friday closing price of $378.48, that works out to around $275 per share. On Friday, Kansas City’s stock closed at $224.16. The offer price is 23% more than Friday’s close. Kansas City Southern turned down a $208-per-share takeover bid from Global Infrastructure Partners in September.
The Blackstone Group is a private equity firm.
The Wall Street Journal reported on the story at the time, citing sources close to the situation. The combination will be the largest in the rail industry since Warren Buffett’s acquisition of BNSF.
Berkshire Hathaway is a company that owns Berkshire Hathaway
Burlington Northern Santa Fe was purchased by (BRK.A) in 2010. Since then, other larger railroad mergers have been discussed but not executed. For example, Canadian Pacific attempted to purchase
Norfolk Southern is a railroad in Norfolk, Virginia.
(NSC) a few years ago, but gave up in the face of regulatory consolidation. Railroad mergers have been more infrequent and difficult to achieve in recent years. Because the business is already somewhat integrated, antitrust concerns are a major consideration. Companies who pay for train services don’t enjoy seeing reduced competition. However, Kansas City Southern is a one-of-a-kind establishment. The US Surface Transportation Board, or STB, granted it an exemption decades ago, making it easier for Kansas City Southern to merge with another significant railroad. Barron’s reported in 2018 that Kansas City Southern could be a target for a takeover. The Surface Transportation Board (STB) is a separate federal organization that oversees certain areas of surface transportation, primarily freight rail. A rail merger must be approved. According to the Financial Times, the two corporations informed the STB of the arrangement on Saturday. However, rail industry consolidation has benefited stockholders. Railroad operating profit margins, as well as railroad stock prices, have been steadily rising for several years. The rail components
S&P 500 Index
For the past ten years, they have averaged a return of nearly 17% each year, which is about 4% more than the Index.
Rail stocks have also had a good start to the year. The shares of Kansas City Southern was up roughly 10% year to date as of Friday’s closing price. The stock of Canadian Pacific had gained by nearly 9%. Both increases are slightly higher than the S&P 500’s similar returns.
The Dow Jones Industrial Average is a stock market index that measures how well a
On Sunday at 2:00 p.m. Eastern Time, the two companies will host an investor conference call. Al Root can be reached at allen.root@dowjones.com.
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