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Railways strike $ 25 billion merger

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Canadian Pacific CP -1.37%

Railway Ltd. has agreed to acquire Kansas City Southern KSU 0.38%

in a merger valued at around $ 25 billion that would create the world’s first freight rail network linking Mexico, the United States and Canada.

The companies said Sunday that their boards of directors had agreed to a deal that values ​​Kansas City at $ 275 a share in a combination of cash and stocks. Kansas City investors will receive 0.489 Canadian Pacific shares and $ 90 in cash for each Kansas City common share held.

If approved by regulators, the deal would unite two of North America’s major freight carriers, connecting factories and ports in Mexico, farms and factories in oceanic ports in the U.S. Midwest and Canada, and energy resources. .

The combined company is said to have annual sales of approximately $ 8.7 billion and employ nearly 20,000 people. It would be headed by CEO of Canadian Pacific, Keith Creel.

Kansas City Southern is the smallest of the five major freight railways in the United States, but plays a key role in trade between the United States and Mexico. Its network mainly stretches the length of Mexico through Texas to its eponymous city. Last year, the company rejected takeover bids worth around $ 20 billion from a group of institutional investors seeking to privatize it, the Wall Street Journal reported.

Canadian Pacific has long sought to unite with Kansas City to expand its reach on its busy freight routes that stretch from Mexico to the southern states and the US Midwest. CP’s main rail lines cross Canada, parts of the northern United States, and south to Chicago.

Canadian railroad chief Mr. Creel worked closely with former chief Hunter Harrison, who made a number of unsuccessful openings to buy Kansas City. Mr Harrison died in 2017 after taking over and reorganizing another US operator, CSX Corp.

This will create the first United States-Mexico-Canada railway, Creel said in a statement.

Rail mergers face significant regulatory hurdles in US Under Harrison’s leadership, Canadian Pacific dropped $ 30 billion lawsuit against Norfolk Southern Corp.

in 2016, after regulators expressed concern about reduced competition and potential safety concerns.

Kansas City and CPR currently have a single point where their two networks connect, at a facility in Kansas City, Missouri, which they jointly operate. The merger could allow trains traveling north and south to avoid having to swap cars and potentially bypass Chicago, a busy and often congested hub of the US freight system.

The merger partners have said the proposed combination will not reduce customer choice because there is no overlap between their systems. They said the possibility of single-line routes would move trucks off U.S. highways, reducing congestion and emissions in the Dallas-Chicago corridor.

The rail freight industry suffered a sharp drop in volume last year as the pandemic slowed trade and temporarily closed many U.S. stores, but volume rebounded as factories continued to operate and economies straightened up. The volume of trade has exceeded some US ports, causing traffic jams and delays.

Write to Jacquie McNish at [email protected]

Copyright 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

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