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Canadian Pacific to Combine with Kansas City Southern for USD 31bn
Friday 17 September 2021

Canada-based transcontinental railway Canadian Pacific Railway Ltd. (TSX: CP) (NYSE: CP) has entered into a merger agreement under which it has agreed to acquire and Kansas City Southern (NYSE: KSU), a transportation holding company that has railroad investments in the US, Mexico and Panama, in a stock and cash transaction representing an enterprise value of approximately USD 31bn, the company said.

The transaction includes the assumption of USD 3.8bn of outstanding KCS debt. The transaction values KCS at USD 300 per share, representing a 34% premium.

To fund the stock consideration of the merger, CP will issue 44.5m new shares. Consistent with the previously announced transaction, the cash portion will be funded through a combination of cash-on-hand and raising approximately USD 8.5bn in debt, for which financing has been committed. Following the closing into trust, CP expects that its outstanding debt will be approximately USD 20bn.

The agreement to combine the two railroads creates the first single-line rail network linking US-Mexico-Canada.

The combined company would operate approximately 20,000 miles of rail, employing close to 20,000 people, and generating total revenues of approximately USD 8.7bn based on 2020 actual revenues.

The combined entity will be named Canadian Pacific Kansas City (CPKC). Calgary will be the global headquarters of CPKC, and Kansas City, Missouri will be the US headquarters.

The Mexico headquarters will remain in Mexico City and Monterrey. CP's current US headquarters in Minneapolis-St. Paul will remain an important base of operations.

BMO Capital Markets and Goldman Sachs and Co. LLC are serving as financial advisors to Canadian Pacific. Sullivan and Cromwell LLP, Bennett Jones LLP and the Law Office of David L. Meyer are serving as legal counsel.

Creel, García-Cuéllar, Aiza y Enríquez, S.C. are serving as Mexican legal counsel to Canadian Pacific. Evercore is serving ‎as the Canadian Pacific Board's financial advisors and Blake, Cassels and Graydon LLP is serving as the board's legal counsel.

BofA Securities and Morgan Stanley and Co. LLC are serving as financial advisors to Kansas City Southern. Wachtell, Lipton, Rosen and Katz, Baker and Miller PLLC, Davies Ward Phillips and Vineberg LLP, WilmerHale, and White and Case, S.C. are serving as legal counsel to Kansas City Southern.
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Date Published: 17/09/2021

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