CP agrees to acquire U.S. rival Kansas City Southern in $25B blockbuster deal
CALGARY -- In what might become the largest ever merger of North American railways, Canadian Pacific Railway Ltd. agreed on Sunday to acquire Kansas City Southern.
It’s a US $25 billion deal which would create a 32,000 kilometre rail network spanning the United States, Mexico and Canada.
The deal could have implications for oil-by-rail shipments from Canada to the United States. Those shipments have become increasingly important after the cancellation of the Keystone-XL pipeline by U-S president Joe Biden.
The Canadian Association of Petroleum Producers (CAPP) supported the rail megadeal. In a written statement Monday afternoon Ben Brunnen, vice-president of oil sands, fiscal and economic policy at CAPP told CTV: “The Canadian Association of Petroleum Producers is supportive of efforts to expand market access. Increased transportation capacity of all types is needed to reach more markets, ensure Canada maximizes the value of its exports, improve our industry’s competitiveness and drive a robust, sustainable economic recovery."
Brunnen added that, “We are supportive of any potential additional market access options the recently announced CP Rail merger may offer and we will be watching closely as this transaction proceeds."
Alberta Premier Jason Kenney also weighed in, posting a series of tweets on Sunday evening saying in part; “The combined rail network will give CP direct access to the US Gulf Coast and beyond, allowing it seamlessly to transport Alberta energy directly to Gulf Coast refineries, improving the economics of crude by rail.“
"Adding CBR (sic) will further be improved by the completion this year of Gibson Energy’s 50,000 BPD Diluent Recovery Unit at Hardisty. This transaction means that Calgary will now be global HQ of North America’s only fully -integrated continental railway, with 20, 000 employees.”
The oil industry isn’t the only non-rail winner in the deal. Western Canadian farmers could see a huge uptick in sales heading south. Already about 1.4 million tonnes of canola and one million tonnes of wheat from western Canada head to Mexico every year, along with other exports, including peas and lentils.
“A lot of that moves by ocean freight, because it's historically been cheaper,"said Tom Steve, general manger of the Alberta Wheat and Barley Commission. "This will provide an option. Ocean freight rates have been rising in recent months because of strong demand and international markets.”
“This provides a check and balance on the on the marketplace, where it can move by rail, directly into Mexico and also into Gulf ports in the southern US. It's definitely a benefit for western Canadian farmers, and in Alberta in particular."
NO JOB LOSSES
Canadian Pacific said the merger of the two powerhouse rail companies will not result in job losses. In a written statement to CTV spokesperson Salem Woodrow confirmed the company will maintain its headquarters in Calgary.
"The story of these two railroads combining is one of growth during a time when the North American economy needs to recover from the COVID-19 downturn," Woodrow said. "We remain committed to Calgary and our head office at Ogden will remain our global headquarters.”
The President and Chief Executive Officer of Calgary Economic Development, Mary Moran called it good news.
"The acquisition of Kansas City Southern is important for CP Rail’s growth as a continental railway and it is important for Calgary because it reinforces our position as a North American hub for the transportation and logistics sector and the home for industry-leading companies," said Moran.
"The ability to get products to markets both safely and efficiently is increasingly important to economic growth and CP Rail is a Calgary-based company creating new opportunities across Canada with improved connections to the United States and Mexico.”
The deal still has to be approved by U.S. regulatory agencies. Previous efforts by Canadian companies to acquire US rail lines have faced defeat in front of U.S. anti-trust authorities, including an attempt by CN to buy Burlington Northern Santa Fe, (owned by Warren Buffet) in 1999-2000.
With files from The Canadian Press first published March 22, 2021.