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CP Rail, Kansas City Southern Rail to combine next month after U.S. approval

$31B U.S. deal creates the only railway stretching from Canada through to the U.S. and Mexico
A Canadian Pacific Railway locomotive is shown at the main CP Rail train yard in Toronto on Monday, March 21, 2022. Canadian Pacific Railway Ltd. says it will officially combine with Kansas City Southern Railway Co. on April 14 under a new name, Canadian Pacific Kansas City.THE CANADIAN PRESS/Nathan Denette

Canadian Pacific Railway Ltd. has announced it will officially combine with Kansas City Southern Railway Co. on April 14, under the new banner of Canadian Pacific Kansas City.

The U.S. rail regulator approved the US$31-billion this week, clearing the final hurdle in CP’s bid to buy KCS and create the only railway stretching from Canada through to the U.S. and Mexico.

“Our new combined railroad will create a truly unique single-line network connecting three nations and instantly injecting new competition into the North American rail industry when our supply chains have never needed it more,” said CP chief executive Keith Creel, who will helm the newly merged company, in a news release Friday.

April 14 was the earliest possible date to complete the merger, based on the U.S. Surface Transportation Board’s decision Wednesday.

CP’s Nadeem Velani will continue as chief financial officer at the joined company, which will headquarter in Calgary and undergo full integration over the next three years.

To “ensure continuity,” KCS chief executive Pat Ottensmeyer will advise Creel through the remainder of 2023, CP said.

Surface Transportation Board chair Martin Oberman said Wednesday the acquisition is in line with the public interest. He said that while consolidation in the rail industry has been a concern over the last few decades, KCS is the smallest of the United States’ six Class I railways, and the combined company will remain so — making the risk that the deal will reduce competition less of a concern.

There are few overlapping routes between the two railways, Oberman noted. The merger is expected to speed up freight travel time, enhance efficiency and encourage better competition with the other five, larger U.S. railways, he said.

It is also expected to shift about 64,000 truckloads annually from North America’s roads to rail.

However, the regulator did attach conditions to the deal, including that the railway keep gateways — connection points between the CPKC system and other railways — open on “commercially reasonable terms,” and to justify in writing any rate increases over a certain level on interline movements.

“We acknowledge the thorough and thoughtful consideration put into the STB’s final decision, including the conditions it imposes in order to assure that the transaction’s public benefits are realized and any potential harms are avoided,” Creel said on in the Friday statement.

“We intend to participate co-operatively and proactively to assist the STB during its oversight process and will honour the conditions the STB has imposed.”

CP competitor Canadian National Railway Co. had fought a long battle over the acquisition before CP closed the deal in December 2021. CN had wooed KCS away from an initial CP offer with a US$33.6-billion proposal in May 2021 before the U.S. regulator rejected CN’s bid in August of that year.

The new Canadian Pacific Kansas City will operate nearly 33,000 kilometres of rail and employ nearly 20,000 people.

The network will stretch from Vancouver and St. John, N.B., to Houston and Mexico City, reaching the Gulf of Mexico and the Pacific Ocean.

—Christopher Reynolds, The Canadian Press

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