Canadian Pacific Railway Limited (CP,CP.TO) has agreed to acquire Kansas City Southern (KSU) in a stock and cash transaction representing an enterprise value of about US$29 billion. The deal includes the assumption of US$3.8 billion of outstanding Kansas City Southern or KCS debt, the companies said in a statement on Sunday.
The transaction values Kansas City Southern at US$275 per share, representing a 23% premium, based on the CP and KCS closing prices on March 19, 2021.
Upon the closing of the deal, common shareholders of Kansas City Southern will receive 0.489 of a CP share and US$90 in cash for each KCS common share held. KCS common shareholders are expected to own 25 percent of CP's outstanding common shares.
The combined entity will be named Canadian Pacific Kansas City. CP President and Chief Executive Officer Keith Creel will serve as the Chief Executive Officer of the combined company.
Calgary will be the global headquarters of the combined company, and Kansas City, Missouri will be designated as the U.S. headquarters. The Mexico headquarters will remain in Mexico City and Monterrey. CP's current U.S. headquarters in Minneapolis-St. Paul will remain an important base of operations.
Four KCS Directors will join CP's expanded Board at the appropriate time.
The companies said that the transaction will combine the two railroads to create the first rail network connecting the U.S., Mexico, and Canada.
The combination is expected to be accretive to CP's adjusted earnings per share in the first full year following CP's acquisition of control of KCS, and is expected to generate double-digit accretion upon the full realization of synergies thereafter.
CP said it will issue 44.5 million new shares to fund the stock consideration of the merger. The cash portion will be funded through a combination of cash-on-hand and raising about US$8.6 billion in debt.
As part of the merger, CP will assume about US$3.8 billion of KCS' outstanding debt. Following the closing of the deal, CP expects that its outstanding debt will be about US$20.2 billion.
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