Railway group Canadian Pacific has agreed to buy Kansas City Southern for $28.9bn including debt in the largest takeover deal this year, people with direct knowledge of the matter said.
The transaction is the biggest in CP’s history and will see it add the smallest of the seven Class I US railway operators that dominate a significant share of freight activity in the country.
The Calgary-based company will pay $275 per share in cash-and-stock to buy the US freight group, the people said. The transaction is expected to be announced on Sunday.
CP’s proposal represents a 23 per cent premium on Kansas City Southern’s closing stock price of $224 at the end of last week. The deal values its equity at $24.9bn before the inclusion of debt.
The board of Kansas City Southern’s board approved the offer on Saturday and the two companies notified the Surface Transportation Board, the US regulator for freight rail, about the deal, the people added. The acquisition will need to be approved by the STB.
Kansas City Southern’s fortunes have been closely tied to trade between the US, Canada and Mexico, with its main routes running north to south and linking the two countries neighbouring the US. It also has extensive operations in Mexico and owns a 50 per cent stake in the Panama Canal Railway Company.
The railway sector was hit hard in the early phase of the pandemic because of restrictions imposed by the US government to contain the spread of the coronavirus.
But the industry’s prospects have improved markedly over recent months, as the US accelerated its rollout of vaccines and business activity picked up considerably. US president Joe Biden’s moves to strengthen US-Mexico trade relations are expected to further boost railway activity.
Shares of Kansas City Southern have more than doubled in the past year. The company rejected a takeover bid last September from a Blackstone and Global Infrastructure Partners-led consortium that valued its shares at $21bn.
Kansas City Southern reported an 8 per cent drop in revenues in 2020 to $2.6bn and a 23 per cent increase in net income to $617m. It employs about 6,200 staff, according to Capital IQ, compared with nearly 12,000 at the Canadian group.
Shares in CP have climbed 80 per cent over the past year and have a market value of C$63bn ($50bn). The company’s largest shareholder is Chris Hohn’s TCI hedge fund which had an 8.4 per cent stake, according to filings from the end of last year.
CP declined to comment. Kansas City Southern did not respond to a request for comment.
This article has been amended to reflect the fact that the Surface Transportation Board has not approved the deal