Times Colonist E-edition

CP expects KCS merger by fall 2022

Shareholders to vote on railway deal in December

CALGARY — Canadian Pacific Railway Ltd.’s acquisition of Kansas City Southern could be complete by next fall, the Calgarybased 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 $31 billion US 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 CanadaU.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.”

Jeff Windau, an analyst with Edward Jones, said the fact that a combined CP and KCS would still be the smallest Class 1 railroad in North America works in the merger’s favour.

“With any acquisition or merger there are always risks going into any regulatory review process,” Windau said in an interview. “But I would say out of all the potential Class 1 rails, this one probably has the highest probability of working its way through the regulatory process. There are fewer hurdles to this one.”

While the new railway will remain the smallest of six large railways operating in the U.S. by revenue, it would operate nearly 33,000 kilometres of rail, employ nearly 20,000 people and generate about $8.7 billion US in annual revenues.

Windau said the benefit of the merger is that it will reduce the number of interchanges and transfers between rail lines.

“There is potentially the ability to connect the various entities better. For example, the automakers in Mexico to Detroit and to Canadian automakers,” he said. “Those connections exist today, it just takes going through more hoops.”

Kansas City Southern chief executive Patrick J. Ottensmeyer, who was also on Thursday’s call with analysts, said the merged company should help to make rail transport more attractive in regions.

“The creation of new single-line service is going to be very attractive to our customers,” Ottensmeyer said.

Following final regulatory approval, Creel will serve as CEO of the combined company. The combined entity will be named Canadian Pacific Kansas City (CPKC).

BUSINESS

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2021-09-17T07:00:00.0000000Z

2021-09-17T07:00:00.0000000Z

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