True Love Can’t Be Stopped

Brian Hilyard
Finance Section Editor

Just like that one high school couple, Canadian Pacific and Kansas City Southern are back together. KSU had been hitting the gym recently so CP had to step up with a $31 billion bid, up from its initial $29 billion offer. It’s more than a touch expensive. KSU common shares are valued at $300/share, a 34% premium to its closing price on the day the bid was inked.

The combined company will still be the smallest of Class 1 rail operators (Photo courtesy of Kansas City Southern)

While Canadian National is tending a wounded heart, it’s indirectly getting a $1.4 billion check from CP due to the breakup. $700 million as a termination fee, and another $700 million as a termination fee refund from the initial CP+KSU deal.

So what does $31 billion get Canadian Pacific? For starters, a rail network that reaches from Vancouver to Mexico City. The 20,000-mile network will run through three strong economies and connect to major ports on both coasts, including in the Gulf of Mexico.

It also offers cheaper transportation costs to American agriculture and industry, whether that be through competition or service and efficiency improvements. That could mean thousands of US trucks off US highways and onto freight cars, an environmental win.

While demand is undoubtedly hurt by Chinese real estate developer Evergrande potentially defaulting on its loans, global demand is expected to rebound as the fallout is contained.


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