Canadian Pacific Railway Ltd.’s acquisition of Kansas City Southern could be complete by next fall, the Calgary-based railway said Thursday.
“That’s what best case looks like, and that’s what we’re going to work our tails off to be able to achieve,” CP chief executive Keith Creel told analysts in a conference call, adding CP plans to submit its merger application to the U.S. Surface Transportation Board next month. The review process could take 10 months or more, Creel said.
“We know it’s going to be a robust review. We anticipate that. We’re going to work in support of that,” he said. “But we hope that and believe that it can be concluded in a reasonable time frame and bring us to a pro forma company by October, November of 2022.”
CP Rail announced Wednesday it has reached a deal to acquire KCS for approximately US$31 billion including debt. The announcement came the same day Canadian National Railway Co. said it is dropping its rival takeover bid for KCS.
CP and KCS will hold shareholder votes in December, Creel said. The merger, which CP says will create the first Canada-U.S.-Mexico rail network, also needs to be approved by Mexican regulators.
CP already has approval to use a voting trust to complete the merger that will allow shareholders to be paid for their shares before the full regulatory review of the takeover is complete.
CP Rail has said customers will not experience a reduction in railroad choice as a result of the transaction and has pledged to keeping all existing freight rail gateways open on “commercially reasonable terms.”
Following final regulatory approval, Creel will serve as CEO of the combined company. The combined entity will be named Canadian Pacific Kansas City (CPKC).
Calgary _ currently the headquarters of CP Rail _ will be the global headquarters of CPKC, and Kansas City, Mo., will be the U.S. headquarters. The Mexican headquarters will remain in Mexico City and Monterrey. CP Rail’s U.S. headquarters in Minneapolis-St. Paul will also remain an important base of operations, the company said.
CP Rail’s offer, which includes the assumption of US$3.8 billion of outstanding KCS debt, values KCS at US$300 per share. Following the closing into a voting trust, common shareholders of KCS will receive 2.884 CP Rail shares and US$90 in cash for each KCS common share held. Preferred shareholders will receive US$37.50 in cash for each KCS preferred share held.
CP Rail said the deal will be accretive to its earnings in the first year. To fund the stock consideration of the merger, it will issue 262 million new shares. The cash portion will be funded through a combination of cash-on-hand and debt.
Montreal-based CN was dealt a setback last month when the U.S. railway regulator denied the company’s use of a voting trust for its own bid for KCS, saying it would be bad for competition.
Under its agreement with KCS, CN said the U.S. railway will pay a US$700-million company termination fee as well as US$700 million that CN paid when KCS broke its initial deal with CP Rail to accept CN’s offer.
Market and Business Report: August 13, 2021
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