Canadian National Railway on Tuesday announced its plan to buy Kansas City Southern, the longtime local rail operator, for $33.7 billion.
Canadian National’s bid to buy Kansas City Southern for $325 per share would represent a 21% premium over rival rail company Canadian Pacific Railway’s proposed acquisition announced in March. Kansas City Southern’s board had agreed to sell to Canadian Pacific for $29 billion, which valued Kansas City Southern at $275 per share. The deal was announced pending regulatory approvals, which are now underway.
In an investor presentation, Canadian National said its proposed combination with Kansas City Southern would form the first end-to-end rail network stretching from Canada into the United States and into Mexico.
Canadian National, like Canadian Pacific, emphasized the new U.S.-Mexico-Canada Agreement (USMCA) in highlighting the benefits of the deal. The new North American trade pact replaces the North American Free Trade Agreement, and the two Canadian rail companies’ bids were seen as a bet that trade among the three countries was likely to pick up as a result.
Canadian National and Kansas City Southern “have highly complementary networks with limited overlap that will enable them to accelerate growth in single-owner, single-operator, end-to-end service across North America,” said Canadian National president and chief executive Jean-Jacques Ruest. “With safer service and better fuel efficiency on key routes from Mexico through the heartland of America, the result will be a safer, faster, cleaner and stronger railway.”
Canadian Pacific and Kansas City Southern officials were not immediately available for comment.
Under Canadian National’s offer, Kansas City Southern shareholders would receive $200 in cash per share and 1.059 shares of Canadian National common stock if the deal closes, resulting in Kansas City Southern shareholders owning 12% of the newly-formed company.
As with the Canadian Pacific deal, there will be questions about how the Canadian National offer would affect jobs in Kansas City, where about 700 people work for Kansas City Southern. Canadian Pacific officials were careful to say in interviews last month that they wanted to preserve Kansas City Southern’s presence in Kansas City and had planned to move its U.S. headquarters from Minneapolis to Kansas City.
“We value and admire KCS’ deep and long-lasting connection to the Kansas City community and the American Midwest,” Canadian National wrote in its letter to the Kansas City Southern board of directors. “We will seek to build upon and strengthen those ties. In furtherance of that goal, we intend to continue operating the KCS business in the United States and Mexico under the Kansas City Southern name and establish Kansas City as the headquarters of our combined company’s U.S. operations.”