(Calgary) US rail regulators have given the go-ahead for the takeover of Kansas City Southern Railway by Canadian Pacific Railway, which can take place as early as April 14.
Approval from the Surface Transportation Board (STB) on Wednesday removed 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 the Canada, the United States and Mexico.
The merged railroad will be known as Canadian Pacific Kansas City (CPKC), and current CP CEO Keith Creel will become its CEO. Its global headquarters will be located in Calgary.
STB chairman Martin Oberman said the regulator concluded the merger was in the public interest. He pointed out that while rail industry consolidation had been a concern over the past few decades, CP and KCS were actually the two smallest Class 1 railroads in North America, reducing concerns related to a possible lessening of competition.
He added that the merger was an “end-to-end” one, meaning there are few overlapping roads. This will speed up freight transportation time, improve efficiency and enable better competition with the other five major U.S. railroads, he said.
“The combination of these two smaller railroads will actually provide a stronger competitive landscape in the rail industry, compared to these much larger railroads,” Oberman said Wednesday at a press conference.
“Because separately, these railways simply don’t have the same power to provide competitive service as they will together. »
The STB received more than 450 letters of support from rail shippers for the transaction, Oberman continued, adding that customers expected the combined company to be a more reliable and cost-effective transportation option for serving north-south trade flows.
The regulator has also been swayed by the argument that the merger will ultimately help rail traffic grow, potentially removing up to 64,000 truckloads a year from highways and helping to reduce greenhouse gas emissions. Greenhouse.
And given last month’s train derailment near East Palestine, Ohio — which once again put rail safety in the spotlight — Oberman said the STB was also encouraged by the strong performance of the two companies.
“When you look at the safety records of all Class 1 railroads, CP has the safest record, and KCS is right behind,” he said.
From terms to agreement
Still, the regulator attached conditions to the deal, including requiring the newly merged railroad to keep gateways — connection points between the CPKC system and other railroads — open on “commercially reasonable terms.” and justify in writing any rate increase beyond a certain level on interline travel.
Although it will remain the smallest of the six major railroads in the United States by revenue, CPKC will operate nearly 33,000 miles of track and employ nearly 20,000 people.
On Wednesday, CP Chief Executive Keith Creel thanked the STB for their hard work in reviewing the deal and said the railroad would announce next steps in the coming days.
“This decision clearly recognizes the many benefits of this historic combination,” Creel said in a press release. “As the STB has established, this will spur new competition, create jobs, lead to new investment in our rail network, and spur economic growth. »
CP’s main competitor, the Montreal-based Canadian National Railway Company (Canadian National), declined to comment on Wednesday.
The two Canadian railroads were interested in acquiring KCS and fought a behind-the-scenes battle for months before CP and the American railroad announced an amicable agreement in March 2021.
A month later, KCS switched alliances, saying CN’s cash and stock offer, valued at US$33.6 billion, was higher.
However, KCS renewed its support for CP and its bid later, after the US transportation regulator denied Canadian National the use of a voting trust for the transaction, believing it would be bad for competition.
CP, which had previously been granted permission to use a voting trust under old rules, was able to complete its proposed deal in December 2021. Since then, KCS shares have been in the voting trust. , which allowed the American railroad to operate independently while the STB completed its review.
