Canadian Pacific Railway Ltd. (TSE: CP) said on Monday that it will buy Kansas City Southern (NYSE: KSU) for roughly £18 billion in cash and stock. The merger will establish the 1st freight-rail network that will link the United States, Canada, and Mexico.
Kansas City Southern shares jumped more than 15% in premarket trading on Monday. The stock, however, slid over 2% on market open and is currently trading at a per-share price of £182.62. The stock had started 2021 at £145.28 after recovering from a low of £78.44 per share in March 2020, when the impact of the COVID-19 crisis was at its peak.
Kansas City Southern shareholders to receive £65 in cash
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Boards of the respective companies have already approved the deal that translates to £198.76 per share. As per the agreement, investors of the U.S. transportation holding company will receive £65.05 in cash and 0.489 share of Canadian Pacific for each common share of Kansas City.
The agreement is awaiting approval from the U.S. STB (Surface Transportation Board) that the two companies said was expected by mid-2022.
The combined company will employ roughly 20 thousand people and generate annual revenue of close to £6.29 billion. Kansas City Southern currently stands at the fifth spot in the list of the five largest U.S. freight railroads, but serves a key role in trade between the United States and Mexico.
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Canadian Pacific’s CEO Keith Creel’s comments on Monday
Chief Executive Keith Creel of Canadian Pacific commented on the announcement on Monday and said:
“This about what we’ve gone through, think about the importance in North America of near-shoring that is occurring. This network uniquely provides a supply chain that allows our customers and our partners to actually benefit from that and leverage that opportunity.”
Canadian Pacific shares that you can conveniently trade online via a range of user-friendly apps opened less than 1% down on Monday and tanked another 2% on market open. Including the price action, the stock is now exchanging hands at £265. In comparison, it was trading at a lower £254 per share at the start of 2021.
At the time of writing, Canadian Pacific has a market cap of £35.37 billion and a price to earnings ratio of 25.57.