Canadian Pacific and Kansas City Southern have submitted a joint application to the Surface Transportation Board to merge both railroads.
The combined network of both railroads would reach Canada, the United States and Mexico, creating a “single-line railroad,” the companies said in a release late Friday.
CP (NYSE: CP) and KCS (NYSE: KSU) say the application includes an overview of the proposed operational integration of both companies’ railroads, the impacts a merger would have on finances and labor needs, and narratives describing what benefits they say would arise for shippers as a result of the consolidation. The filing outlines how more efficient north-south trade arteries will support the interconnected supply chains between the North American countries, CP and KCS said.
“We are excited to file our joint application for this unique, pro-competitive combination and once-in-a-lifetime partnership,” said CP President and CEO Keith Creel. “CPKC [the name of the combined railroad] is an extraordinary opportunity to inject new competition and new capacity into the U.S. rail network, further USMCA trade flows, improve safety, grow employment and facilitate new passenger services. We are ready to work with the STB as the board gives this transaction a thorough and appropriate review, and ultimately look forward to approval so we can get to work delivering these benefits to the North American economy.”
Said KCS President and CEO Pat Ottensmeyer, “We are pleased to submit this application together and take another important step toward bringing to fruition this historic opportunity for CP and KCS. In fierce competition with other railroads, trucks and other modes of transportation, CPKC will provide new routes, reach broader markets and create expanded shipping opportunities for customers. This combination will also unlock new infrastructure investment and environmentally friendly supply chain transportation options that will grow the USMCA economy.”
CP and KCS say the merger would create more than 1,000 new jobs systemwide, including approximately 760 in the U.S., over the next three years as the railroads expand rail operations. CP and KCS also say more than $275 million would be spent in capital investments to address rail safety and capacity between Louisiana and the Upper Midwest.
Both railroads also say the merged company’s intermodal service could potentially deliver 64,000 long-haul truck shipments annually.
“Rail customers will not experience a reduction in independent railroad choices as a result of the CP-KCS combination,” CP and KCS said. “The joint control application reiterates the applicants’ commitment to keep all existing freight rail gateways open on commercially reasonable terms, including the Laredo gateway between the United States and Mexico, and shows how customers will not lose competitive routings because no new regulatory ‘bottlenecks’ are being created. It also describes how the combined company will compete aggressively to attract traffic to its network via new single-line lanes between Canada, the Upper Midwest and the Gulf Coast, Texas and Mexico.”
The proposed deal calls for CP to acquire KCS in a stock-and-cash transaction worth $31 billion. The boards of both companies must also approve the merger. CP and KCS hope for STB to complete its review of KCS and CP’s merger application sometime in the second half of 2022.
CP and KCS say even as a merged company, the combined railroad would still be the smallest of the six U.S. Class I railroads by revenue.
CP and KCS agreed to merge in September. CP, KCS and CP rival CN (NYSE: CNI) were engaged in a monthslong battle over who would acquire KCS. CP and KCS announced in March that they would merge, only for KCS to back out of the plan and opt for a rival offer from CN in May. But after STB failed to approve CN’s application for a voting trust — a tool CN planned to use to acquire KCS — CN and KCS parted ways, with KCS returning to original merger partner CP.
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CN names new member to board of directors
As the merger application process proceeds before STB, CN said last week that it has named Jo-ann dePass Olsovsky to its board of directors, effective immediately.
The appointment is significant because activist investor TCI Fund Management has been pressing CN to consider its four choices for the board, and it has been seeking to replace current and retiring CN CEO JJ Ruest with TCI’s handpicked choice, former Union Pacific executive Jim Vena. TCI has been pushing for the changes since CN’s failed attempt to acquire KCS.
CN says dePass Olsovsky brings more than 35 years of technology, infrastructure operations and railroad experience to CN. She currently serves as executive vice president and chief information officer of Salesforce, overseeing technology strategy, partner and employee experience, enterprise applications, network infrastructure and M&A integration.
She also served as senior vice president and chief information officer at BNSF (NYSE: BRK.B) for nearly 12 years. Her responsibilities there entailed leading BNSF’s enterprise information technology, including the railroad’s train control and operational systems supporting safety, transportation and digital train control, mechanical, engineering and intermodal automation. She also led BNSF’s cloud digitization strategy as well as its drone inspection operations for bridges, track and structures.
“We are pleased to welcome Jo-ann to CN as an independent director. She has deep expertise in advanced technologies and customer applications and spent more than a decade as a senior
executive at a Class I railroad. The intersection of her technology, operations and railroad
experience creates a powerful combination of expertise that will be valuable to CN as we continue building the railway of the future using digital innovation to drive safety, operational excellence, customer experience and enhanced long-term shareholder value,” said Robert Pace, chair of the board of directors for CN.
DePass Olsovsky fills the vacancy created in September when a director resigned to spend more time on her full-time executive role outside of CN, the company said.
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