Canadian Pacific Proposal to Combine with Kansas City Southern

Canadian Pacific Railway Limited has announced they have submitted a superior proposal to acquire Kansas City Southern (KCS) in a stock and cash transaction valued at approximately US$31 billion, offering KCS stockholders an alternative that recognized the premium value of KCS while providing more regulatory certainty. The proposed transaction, which has the support of the Canadian Pacific (CP) Board of Directors, values KCS at US$300 per share, representing a 34 percent premium, based on the CP closing price on August 9th, 2021, and KCS unaffected closing price from March 19, 2021, according to the press release based on a letter to the KCS Board of Directors outlining the proposal.

Following the closing into a voting trust, common shareholders of KCS will receive 2,884 CP common shares and US$90 in cash for each share of KCS common stock held. The proposed transaction includes the assumption of US$3.8 billion of outstanding KCS debt.

This superior proposal represents improved terms to those agreed to in the CP-KCS merger agreement entered into on March 21, 2021, that are substantially similar to those in the Canadian National (CN) merger agreement but offers significantly higher regulatory certainty than the proposed CN merger and significantly higher value than our previously agreed combination.

As stated by the company’s press release, the CP-KCS combination would enhance competition, create new and stronger competitive single-line options against existing single-line routes while taking trucks off the highway. The CP-KCS combination would maintain all existing freight rail gateways and maintain competition in the Baton Rouge to New Orleans corridor, while creating new north-south lanes between Western Canada, the Upper Midwest and the Gulf Coast and Mexico.

“Unlike a combination with CN, a CP-KCS combination will be transformational in a positive manner for the railroad industry and will serve the best interests of our respective customers, shareholders and other stakeholders and the North American economy. This end-to-end combination, with a focus on growth, would also ensure the viability of KCS's full network going forward, without the need to address issues related to overlap as in the proposed CN merger.” Said Keith Creel, CEO of Canadian Pacific. “Bringing together CP and KCS, two railroads that have been keenly focused on providing quality service to customers, will unlock the full potential of our networks and our people, and KCS stockholders will have the benefit of participating in the upside of our combined company's growth” he added.