US regulator OKs $31bn merger of Canadian Pacific, Kansas City Southern railroads

HOUSTON (ICIS)–The US Surface Transportation Board (STB) has approved the merger of railroads Kansas City Southern (KCS) and Canadian Pacific (CP), authorising CP to exercise control over KCS as early as 14 April.

The combined Canadian Pacific Kansas City (CPKC) rail carrier will be the first single-line railway connecting the US, Mexico and Canada.

CP completed its $31bn acquisition of KCS on 14 December 2021.

Immediately upon the closing of that acquisition, shares of KCS were placed into a voting trust, which ensured that KCS operated independently of CP during the regulatory review process.

Until CP exercises control pursuant to the STB decision, CP and KCS will continue to operate independently.

The merged CPKC would have 20,000 employees and operate a 32,000km rail network across Canada, the US and Mexico. Still, even after the merger, it would be the smallest of the Class I carriers.

“This decision clearly recognises the many benefits of this historic combination,” Keith Creel, CP president and CEO, said. “As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network and drive economic growth.”

“This important milestone is the catalyst for realising the benefits of a North American railroad for all of our stakeholders,” Patrick J Ottensmeyer, KCS president and CEO, said.

The companies said the creation of CPKC will bring a new standard of safety to the North American rail landscape.

CP has been the safest railroad in North America for 17 straight years as measured by the Federal Railroad Administration (FRA) train accident frequency ratio.

In 2022, CP had an all-time best frequency of 0.93, a rate nearly half what the company produced a decade ago and 69% lower than the Class 1 average.

The STB said in its decision that the transaction is “end-to-end,” meaning that there are little to no track redundancies or overlapping routes.

“If consummated, it will reduce travel time for traffic moving over the single line service; it should result in increased incentives for investment; and it will eliminate the need for the two now-separate CP and KCS systems to interchange traffic moving from one system to the other,” the STB said in its decision.

“The transaction will make possible improved single-line service for many shippers and will result in merger synergies that are likely to allow CPKC to be a vigorous competitor to other Class Is by providing improved service at lower cost,” the STB said.

Headquartered in Calgary, Canada, CPKC will remain the smallest of six US Class 1 railroads by revenue, but the combined company will have a much larger and more competitive network, operating approximately 20,000 miles of rail.

In the US, chemical railcar loadings represent about 20% of chemical transportation by tonnage, with trucks, barges and pipelines carrying the rest. In Canada, producers rely on rail to ship more than 70% of their products, with some exclusively using rail.

In 2021, total North American chemical railcar loadings came to 2.37m, up 4.2% from 2020, according to the Association of American Railroads (AAR).

Additional reporting by Stefan Baumgarten

Thumbnail image shows a railroad. Photo by Shutterstock