Tuesday, March 23, 2021

Canadian Pacific-K.C. Southern merger to create first U.S.-Canada-Mexico railroad, boosting markets for northern grain

Map from companies' presentation shows potential flow of grain
from producing areas through processing areas to producing areas.
The first railroad to span Canada, the U.S. and Mexico will be created if and when Canadian Pacific Railway buys Kansas City Southern, as the two firms agreed Sunday.

The $25 billion cash-and-stock deal "would be the largest ever combination of North American railways by transaction value," just behind Berkshire Hathaway's purchase of BNSF Railway in 2010, Reuters reports. "It comes amid a recovery in supply chains that were disrupted by the Covid-19 pandemic, and follows the ratification of the US-Mexico-Canada Agreement last year that removed the threat of trade tensions that had escalated under former U.S. President Donald Trump."

The merger is subject to approval of the U.S. Surface Transportation Board, but "The companies expressed confidence this would happen by the middle of 2022, given that the deal would unite the smallest of the seven so-called Class I railways in the United States, which meet in Kansas City and have no overlap in their routes. The combined railway would still be smaller than the remaining five Class I railways," Reuters reports. 

The companies argued that the deal will have trade, agricultural and environmental benefits, reducing U.S. truck traffic. John Brooks, CP's executive vice president and chief marketing officer, called the prospects for agricultural exports a "game-changer in terms of what this combination is going to do" for the grain business in Canada and areas the railway serves in the U.S.

"Pointing to opportunities for Canadian Pacific's customers, the presentation on the purchase heavily stressed the growth in U.S.-Mexico cross-border trade in areas such as Laredo, Texas, where Kansas City Southern operates," Chris Clayton reports for DTN/The Progressive Farmer.

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