Please ensure Javascript is enabled for purposes of website accessibility

Canadian Pacific to Buy Kansas City Southern in $25 Billion Deal

By Rich Duprey - Mar 21, 2021 at 1:23PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It will create the only railroad with owned track running from Canada to Mexico.

Canadian Pacific Railway (CP 0.23%) is set to create the only true North American railroad whose rails will stretch from Canada, through the U.S., and down into Mexico.

The Financial Times reports the Calgary-based railroad will be acquiring Kansas City Southern (KSU) for $275 per share, or $25 billion, in a cash and stock deal. The purchase will need to be approved by the Surface Transportation Board, which regulates railroad rates, mergers and acquisitions, and disputes among railways.

Locomotive of the Canadian Pacific Railway

Image source: Canadian Pacific Railway.

While Canadian Pacific is currently able to access Mexican markets through agreements with other railroads, the purchase of Kansas City Southern will now allow it to directly enter them through its own system. 

The two railroads connect at just one point -- in Kansas City, Mo. -- and the union will create a system with about 16,400 miles of track. 

Mexico is Kansas City's most important market, accounting for more than half of all revenue, with the rest coming from various Midwest routes. It's expected to become even more important in a Biden administration, which is expected to relax trade restrictions President Trump imposed.

Both railroads were hurt by the COVID-19 pandemic because of restrictions to limit the spread of the virus, but with the widespread distribution and administration of vaccines, railroads are expected to see more business.

In addition to a direct route to Mexico, the acquisition will give Canadian Pacific additional access to overseas markets through Kansas City Southern's Gulf of Mexico port routes, including Brownsville, New Orleans, Houston, and Lake Charles.

Kansas City Southern was previously approached by private equity firm Blackstone Group and Global Infrastructure Partners, one of the world's largest infrastructure investors with some $71 billion in assets, which offered to buy the transportation stock for $20 billion. That offer was rejected.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Canadian Pacific Railway Stock Quote
Canadian Pacific Railway
$68.83 (0.23%) $0.16
Kansas City Southern Stock Quote
Kansas City Southern
The Blackstone Group L.P. Stock Quote
The Blackstone Group L.P.
$107.57 (2.86%) $2.99

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.