Canadian Pacific gets green light to acquire Kansas City Southern

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Canadian Pacific gets green light to acquire Kansas City Southern

The transaction will allow Canadian Pacific to lay the foundation for the creation of a single-line rail network linking Canada, the United States and Mexico.

U.S. rail regulators have given the go-ahead for the takeover of Kansas City Southern Railway (KCS) by Canadian Pacific Railway (CP).

Surface Transportation Board (STB) approval on Wednesday cleared the final hurdle in CP's bid to buy KCS for US$31 billion in a deal that will create the only single-line rail network connecting Canada, the United States and Mexico.

The merged railroad will be known as Canadian Pacific Kansas City (CPKC), and the x27; CP's current chief executive, Keith Creel, will become its chief executive. Its global headquarters will be located in Calgary.

Although it will remain the smallest of the six major railroads in the United States by revenue, it will operate nearly 33,000 miles of track and employ nearly 20,000 people.

It's been a long and bumpy road to get here, with CP having fought a long battle with its domestic competitor, the Canadian National Railway Company (Canadian National), over the issue of rail. acquisition before its proposed agreement closes in December 2021.

CP argued that the merger would create a more efficient and competitive rail network and provide customers with a more reliable and economical transportation option to serve north-south trade flows.

However, CN and the US Department of Justice's Antitrust Division have expressed concerns about the merger, warning of threats to competition.

In its decision on Wednesday, the STB emphasized that the merger was end-to-end, meaning there are few overlapping routes. This will speed freight time, improve efficiency and allow for better competition with the other big five US railroads, he explained.

It's no surprise, then, that there is substantial [but not unanimous] support from shippers for this transaction โ€“ the board received over 450 letters of support, the decision reads. /p>

Even end-to-end mergers, however, can pose competitive risks, and, indeed, this decision reverses precedent of the agency failing to sufficiently acknowledge these concerns .

The regulator has attached conditions to the deal, including requiring the newly merged railroad to keep gateways โ€” connection points between the CPKC system and other railroads โ€” open on commercially reasonable terms and conditions. justify in writing any rate increase beyond a certain level on interline travel.

Martin J. Oberman, president of the STB, was to hold a meeting on Wednesday morning press conference on the decision.

The road has been long and strewn with pitfalls to arrive at the merger. Both CP and CN were interested in acquiring KCS and fought a behind-the-scenes battle for months before CP and US Railroad announced an amicable agreement in March 2021.

A month later, KCS switched alliances saying CN's cash and stock offering, valued at US$33.6 billion , was superior.

However, KCS renewed its support for CP and its bid later, after the US transportation regulator denied Canadian National the #x27;using a voting trust for the transaction, believing it would be bad for competition.

CP, which had already obtained permission to use a voting trust under old rules, was able to conclude its proposal for ;deal in December 2021. Since then, KCS shares have been in the voting trust, which allowed the US railroad to operate independently while the STB conducted its review.

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