Canadian Pacific Railway Ltd. agreed to acquire Kansas City Southern in a transaction valued at about $25 billion that would create the first freight-rail network linking Mexico, the U.S. and Canada.
The combination, which faces a lengthy regulatory review, is a long-term wager on an interconnected North American economy. The three countries are reopening at different speeds after the Covid-19 pandemic disrupted supply chains and upended global trade. Rail volumes, which plunged last year, have rebounded though backlogs at California ports have delayed imports from Asia and stalled some U.S. factories.
It marks the third major U.S. railroad that the Canadian company has targeted in its quest to create a transcontinental network. Canadian Pacific abandoned the two prior efforts—in 2014 and 2016—amid resistance from the takeover targets themselves as well as opposition from rivals, shippers and U.S. regulators.
Keith Creel, chief executive of Canadian Pacific, said lessons were learned from the failed bids. He expects Kansas City’s support for the proposed merger and said the lack of rail-line duplication between the two companies will minimize potential regulatory concerns. “You have two like-minded companies that are committed to this and see the value,” he said.
Patrick Ottensmeyer, CEO of Kansas City, said the new U.S.-Mexico-Canada trade agreement, which replaced Nafta in July 2020, creates a unique opportunity to ship freight through the three countries as their economies recover from the pandemic.
Read More: Railroads Strike a $25 Billion Merger