Canadian Pacific Railway Limited has agreed to buy Kansas City Southern for $25 Billion, and create a 20,000-mile network that would link the U.S., Mexico and Canada through a single rail line. If the deal is approved by the U.S. Surface and Transportation Board, the combined company will be headquartered in Calgary operating under the name Canadian Pacific Kansas City.
The deal would create a rail network extending across Canada from Vancouver to New Brunswick, and through the U.S. Midwestern network to Gulf of Mexico ports and deep into Mexico down to Mexico City.
A joint company statement said that the two rail companies decided the timing of the deal was right in light of the new three-way USMCA trade deal that replaced the old NAFTA pact.
Howard Greene, a former journalist, railway analyst, and author of the book ‘Railroader’ believes the deal has a good chance of being approved by government regulators. “This deal has an air of inevitability to it. The choice of companies, CP is the smallest in Canada, KCS is the smallest of the smallest of the five Class One’s in the United States, and probably the most likely to meet with the approval of regulators. But I think the other interesting point here is it’s a friendly deal, or appears to be a friendly deal.”
The transaction would be the biggest Canadian purchase of a U.S. asset since Enbridge finalized its deal for Spectra Energy in early 2017.
A North America-wide rail line network headquartered in Calgary would be good news for Alberta’s hard-hit oil industry. But the joint company statement highlighted the environmental points of the deal, saying the new single-line routes will cut emissions, as rail is four times more fuel efficient than trucking.
“Climate change is front-and-center in the release. You know, one train is the equivalent of 300 trucks. Trucks are bigger emitters. And the fact that this kind of arrangement, if it goes through, could be a big help to Western oil producers getting their product to market in the absence of new pipelines. A line right down the Gulf of Mexico.”
Canadian Pacific will file the merger application with the U.S. Surface and Transportation Board, and begin the process of creating a trust that will hold Kansas City Southern’s shares while approval is pending.