Canadian Pacific Railway Limited (TSX: CP, NYSE: CP) (“CP”) and
Kansas City Southern (NYSE: KSU) (“KCS”) today announced they have
jointly filed a railroad control application with the Surface
Transportation Board (“STB”) regarding the proposed transaction to
create Canadian Pacific Kansas City (“CPKC”), the only single-line
railroad linking the United States, Mexico and Canada.
“We are excited to file our joint application for this unique,
pro-competitive combination and once-in-a-lifetime partnership,”
said Keith Creel, CP President and Chief Executive Officer. “CPKC
is an extraordinary opportunity to inject new competition and new
capacity into the U.S. rail network, further USMCA trade flows,
improve safety, grow employment and facilitate new passenger
services. We are ready to work with the STB as the board gives this
transaction a thorough and appropriate review, and ultimately look
forward to approval so we can get to work delivering these benefits
to the North American economy.”
“We are pleased to submit this application together and take
another important step toward bringing to fruition this historic
opportunity for CP and KCS,” said Patrick J. Ottensmeyer, KCS
President and Chief Executive Officer. “In fierce competition with
other railroads, trucks and other modes of transportation, CPKC
will provide new routes, reach broader markets and create expanded
shipping opportunities for customers. This combination will also
unlock new infrastructure investment and environmentally-friendly
supply chain transportation options that will grow the USMCA
economy.”
The comprehensive control application provides an overview of
the proposed operational integration of the CP and KCS rail
networks, the impact of that consolidation on the companies’
finances and labour needs, and the anticipated competitive and
other benefits that will flow from providing shippers with new and
better transportation alternatives. Information in the filing
outlines the public and customer benefits a CP-KCS combination
would bring, including more efficient north-south trade arteries to
support the interconnected supply chains of the United States,
Mexico and Canada.
In addition to the central foundation of the transaction to
invigorate transportation competition and support economic growth
across North America, the CP-KCS combination will generate many
other public benefits, including:
- The creation of more than 1,000 direct new jobs system-wide,
including approximately 760 in the United States, over the next
three years brought about by expanded rail operations across the
combined network.
- Capital investments in new infrastructure of more than USD$275
million1 over the next three years to improve rail safety and
capacity of the core north-south CPKC main line between Louisiana
and the Upper Midwest.
- Avoidance of more than 1.5 million tons of greenhouse gas (GHG)
emissions within five years due to the improved efficiency of CPKC
versus current operations.
- Diverting 64,000 long-haul truck shipments to rail annually
with new CPKC intermodal services, eliminating another 1.3 million
tons of GHG emissions over the next two decades, saving $750
million in highway maintenance costs.
Rail customers will not experience a reduction in independent
railroad choices as a result of the CP-KCS combination. The joint
control application reiterates the applicants’ commitment to keep
all existing freight rail gateways open on commercially reasonable
terms, including the Laredo gateway between the United States and
Mexico, and shows how customers will not lose competitive routings
because no new regulatory “bottlenecks” are being created. It also
describes how the combined company will compete aggressively to
attract traffic to its network via new single-line lanes between
Canada, the Upper Midwest and the Gulf Coast, Texas, and
Mexico.
More than 960 stakeholders, including more than 440 shippers,
186 smaller railroads, dozens of public officials, eight major
ports, railroad labor unions representing both CP and KCS employees
and 289 rail industry suppliers have written letters to the STB
supporting CP’s proposed combination with KCS.
CP has agreed to acquire KCS in a stock and cash transaction
representing an enterprise value of approximately $31 billion,
which includes the assumption of $3.8 billion of outstanding KCS
debt. The transaction, which has the unanimous support of both
boards of directors, values KCS at $300 per share, representing a
34 percent premium, based on the CP closing price on Aug. 9, 2021,
the date prior to which CP submitted a revised offer to acquire
KCS, and KCS’ unaffected closing price on March 19, 2021.2
The transaction is subject to approval by shareholders of each
company along with satisfaction of customary closing conditions,
including Mexican regulatory approvals. Shareholders are expected
to vote on the transaction later this year.
CP’s ultimate acquisition of control of KCS’ U.S. railways is
subject to the approval of the STB. In April 2021, the STB
determined it would review the CP-KCS combination under the merger
rules in existence prior to 2001 and the waiver granted to KCS in
2001 to exempt it from the 2001 merger rules. In August 2021, the
STB reaffirmed that the pre-2001 rules would govern its review of
the CP-KCS transaction. On Sept. 30, 2021, the STB confirmed that
it has approved the use of a voting trust for the CP-KCS
combination.
The STB review of CP’s proposed control of KCS is expected to be
completed in the second half of 2022. Upon obtaining control
approval, the two companies will be integrated fully over the
ensuing three years, unlocking the benefits of the combination.
While remaining the smallest of six U.S. Class 1 railroads by
revenue, the combined company would have a much larger and more
competitive network, operating approximately 20,000 miles of rail,
employing close to 20,000 people, and generating total revenues of
approximately $8.7 billion based on 2020 actual revenues.
For more information about the benefits of the CP-KCS
combination, visit futureforfreight.com
FORWARD LOOKING STATEMENTS AND INFORMATION
This news release includes certain forward looking statements
and forward looking information (collectively, FLI) to provide CP
and KCS shareholders and potential investors with information about
CP, KCS and their respective subsidiaries and affiliates, including
each company’s management’s respective assessment of CP, KCS and
their respective subsidiaries’ future plans and operations, which
FLI may not be appropriate for other purposes. FLI is typically
identified by words such as “anticipate”, “expect”, “project”,
“estimate”, “forecast”, “plan”, “intend”, “target”, “believe”,
“likely” and similar words suggesting future outcomes or statements
regarding an outlook. All statements other than statements of
historical fact may be FLI.
Although we believe that the FLI is reasonable based on the
information available today and processes used to prepare it, such
statements are not guarantees of future performance and you are
cautioned against placing undue reliance on FLI. By its nature, FLI
involves a variety of assumptions, which are based upon factors
that may be difficult to predict and that may involve known and
unknown risks and uncertainties and other factors which may cause
actual results, levels of activity and achievements to differ
materially from those expressed or implied by these FLI, including,
but not limited to, the following: the timing and completion of the
transaction, including receipt of regulatory and shareholder
approvals and the satisfaction of other conditions precedent;
interloper risk; the realization of anticipated benefits and
synergies of the transaction and the timing thereof; the success of
integration plans; the focus of management time and attention on
the transaction and other disruptions arising from the transaction;
changes in business strategy and strategic opportunities; estimated
future dividends; financial strength and flexibility; debt and
equity market conditions, including the ability to access capital
markets on favourable terms or at all; cost of debt and equity
capital; potential changes in the CP share price which may
negatively impact the value of consideration offered to KCS
shareholders; the ability of management of CP, its subsidiaries and
affiliates to execute key priorities, including those in connection
with the transaction; general Canadian, U.S., Mexican and global
social, economic, political, credit and business conditions; risks
associated with agricultural production such as weather conditions
and insect populations; the availability and price of energy
commodities; the effects of competition and pricing pressures,
including competition from other rail carriers, trucking companies
and maritime shippers in Canada, the U.S. and Mexico; North
American and global economic growth; industry capacity; shifts in
market demand; changes in commodity prices and commodity demand;
uncertainty surrounding timing and volumes of commodities being
shipped; inflation; geopolitical instability; changes in laws,
regulations and government policies, including regulation of rates;
changes in taxes and tax rates; potential increases in maintenance
and operating costs; changes in fuel prices; disruption in fuel
supplies; uncertainties of investigations, proceedings or other
types of claims and litigation; compliance with environmental
regulations; labour disputes; changes in labour costs and labour
difficulties; risks and liabilities arising from derailments;
transportation of dangerous goods; timing of completion of capital
and maintenance projects; sufficiency of budgeted capital
expenditures in carrying out business plans; services and
infrastructure; the satisfaction by third parties of their
obligations; currency and interest rate fluctuations; exchange
rates; effects of changes in market conditions and discount rates
on the financial position of pension plans and investments; trade
restrictions or other changes to international trade arrangements;
the effects of current and future multinational trade agreements on
the level of trade among Canada, the U.S. and Mexico; climate
change and the market and regulatory responses to climate change;
anticipated in-service dates; success of hedging activities;
operational performance and reliability; customer, shareholder,
regulatory and other stakeholder approvals and support; regulatory
and legislative decisions and actions; the adverse impact of any
termination or revocation by the Mexican government of Kansas City
Southern de Mexico, S.A. de C.V.’s Concession; public opinion;
various events that could disrupt operations, including severe
weather, such as droughts, floods, avalanches and earthquakes, and
cybersecurity attacks, as well as security threats and governmental
response to them, and technological changes; acts of terrorism, war
or other acts of violence or crime or risk of such activities;
insurance coverage limitations; material adverse changes in
economic and industry conditions, including the availability of
short and long-term financing; and the pandemic created by the
outbreak of COVID-19 and its variants, and resulting effects on
economic conditions, the demand environment for logistics
requirements and energy prices, restrictions imposed by public
health authorities or governments, fiscal and monetary policy
responses by governments and financial institutions, and
disruptions to global supply chains.
We caution that the foregoing list of factors is not exhaustive
and is made as of the date hereof. Additional information about
these and other assumptions, risks and uncertainties can be found
in reports and filings by CP and KCS with Canadian and U.S.
securities regulators, including any proxy statement, prospectus,
material change report, management information circular or
registration statement to be filed in connection with the
transaction. Reference should be made to “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Forward Looking Statements” in CP’s and KCS’s
annual and interim reports on Form 10-K and 10-Q. Due to the
interdependencies and correlation of these factors, as well as
other factors, the impact of any one assumption, risk or
uncertainty on FLI cannot be determined with certainty.
Except to the extent required by law, we assume no obligation to
publicly update or revise any FLI, whether as a result of new
information, future events or otherwise. All FLI in this news
release is expressly qualified in its entirety by these cautionary
statements.
ABOUT CANADIAN PACIFIC
Canadian Pacific is a transcontinental railway in Canada and the
United States with direct links to major ports on the west and east
coasts. CP provides North American customers a competitive rail
service with access to key markets in every corner of the globe. CP
is growing with its customers, offering a suite of freight
transportation services, logistics solutions and supply chain
expertise. Visit www.cpr.ca to see the rail advantages of CP.
CP-IR
ABOUT KCS
Headquartered in Kansas City, Mo., Kansas City Southern (KCS)
(NYSE: KSU) is a transportation holding company that has railroad
investments in the U.S., Mexico and Panama. Its primary U.S.
holding is The Kansas City Southern Railway Company, serving the
central and south central U.S. Its international holdings include
Kansas City Southern de Mexico, S.A. de C.V., serving northeastern
and central Mexico and the port cities of Lázaro Cárdenas, Tampico
and Veracruz, and a 50 percent interest in Panama Canal Railway
Company, providing ocean-to-ocean freight and passenger service
along the Panama Canal. KCS’ North American rail holdings and
strategic alliances with other North American rail partners are
primary components of a unique railway system, linking the
commercial and industrial centers of the U.S., Mexico and Canada.
More information about KCS can be found at www.kcsouthern.com.
ADDITIONAL INFORMATION ABOUT THE TRANSACTION AND WHERE TO
FIND IT
CP has filed with the U.S. Securities and Exchange Commission
(SEC) a registration statement on Form F-4, which includes a proxy
statement of KCS that also constitutes a prospectus of CP, and any
other documents in connection with the transaction. The
registration statement has not yet become effective. When
finalized, the definitive proxy statement/prospectus will be sent
to the stockholders of KCS. CP will also file a management proxy
circular in connection with the transaction with applicable
securities regulators in Canada and the management proxy circular
will be sent to CP shareholders. INVESTORS, STOCKHOLDERS AND
SHAREHOLDERS OF KCS AND CP ARE URGED TO READ THE REGISTRATION
STATEMENT, THE PRELIMINARY PROXY STATEMENT/PROSPECTUS AND
MANAGEMENT PROXY CIRCULAR, AS APPLICABLE, AND ANY OTHER DOCUMENTS
FILED OR TO BE FILED WITH THE SEC OR APPLICABLE SECURITIES
REGULATORS IN CANADA IN CONNECTION WITH THE TRANSACTION WHEN THEY
BECOME AVAILABLE (INCLUDING ANY AMENDMENTS AND SUPPLEMENTS
THERETO), AS THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT KCS, CP,
THE TRANSACTION AND RELATED MATTERS. The registration statement and
proxy statement/prospectus and other documents filed by CP and KCS
with the SEC, when filed, will be available free of charge at the
SEC’s website at www.sec.gov. In addition, investors and
shareholders will be able to obtain free copies of the registration
statement, proxy statement/prospectus, management proxy circular
and other documents which will be filed with the SEC and applicable
securities regulators in Canada by CP online at investor.cpr.ca and
www.sedar.com, upon written request delivered to CP at 7550 Ogden
Dale Road S.E., Calgary, Alberta, T2C 4X9, Attention: Office of the
Corporate Secretary, or by calling CP at 1-403-319-7000, and will
be able to obtain free copies of the proxy statement/prospectus and
other documents filed with the SEC by KCS online at
www.investors.kcsouthern.com, upon written request delivered to KCS
at 427 West 12th Street, Kansas City, Missouri 64105, Attention:
Corporate Secretary, or by calling KCS’s Corporate Secretary’s
Office by telephone at 1-888-800-3690 or by email at
corpsec@kcsouthern.com.
You may also read and copy any reports, statements and other
information filed by KCS and CP with the SEC at the SEC public
reference room at 100 F Street N.E., Room 1580, Washington, D.C.
20549. Please call the SEC at 1-800-732-0330 or visit the SEC’s
website for further information on its public reference room. This
news release shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be
any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to appropriate
registration or qualification under the securities laws of such
jurisdiction. No offering of securities shall be made except by
means of a prospectus meeting the requirements of Section 10 of the
U.S. Securities Act of 1933, as amended.
PARTICIPANTS IN THE SOLICITATION OF PROXIES
This news release is not a solicitation of proxies in connection
with the transaction. However, under SEC rules, CP, KCS, and
certain of their respective directors and executive officers may be
deemed to be participants in the solicitation of proxies in
connection with the transaction. Information about CP’s directors
and executive officers may be found in its 2021 Management Proxy
Circular, dated March 10, 2021, as well as its 2020 Annual Report
on Form 10-K filed with the SEC and applicable securities
regulators in Canada on February 18, 2021, available on its website
at investor.cpr.ca and at www.sedar.com and www.sec.gov.
Information about KCS’s directors and executive officers may be
found on its website at www.kcsouthern.com and in its 2020 Annual
Report on Form 10-K filed with the SEC on January 29, 2021,
available at www.investors.kcsouthern.com and www.sec.gov. These
documents can be obtained free of charge from the sources indicated
above. Additional information regarding the interests of such
potential participants in the solicitation of proxies in connection
with the transaction will be included in the proxy
statement/prospectus and management proxy circular and other
relevant materials filed with the SEC and applicable securities
regulators in Canada when they become available.
1 Except where noted, all figures are in U.S. dollars. 2 Based
on KCS closing share price of $224.16 as of March 19, 2021 and CP
closing share price of CAD$91.50 (at 1.2565 FX rate) as of Aug. 9,
2021.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211029005574/en/
Canadian Pacific Media Patrick Waldron Tel: 403-852-8005
Patrick_Waldron@cpr.ca; alert_mediarelations@cpr.ca
Investment Community Maeghan Albiston Tel: 403-319-3591
investor@cpr.ca
Kansas City Southern Media C. Doniele Carlson Tel:
816-983-1372 dcarlson@kcsouthern.com
Investment Community Ashley Thorne Tel: 816-983-1530
athorne@kcsouthern.com
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