CP-KCS merger wins approval

by Inside Logistics Online Staff

The U.S. Surface Transportation Board (STB) has approved the merger of CP and KCS to form Canadian Pacific Kansas City (CPKC), the first single-line railway connecting the U.S., Mexico and Canada.

The decision authorizes CP to exercise control of KCS as early as April 14, 2023, at or after which point CP and KCS would combine to create the new CPKC. CP said in a statement it is reviewing the full 212-page decision in detail and in the coming days will announce its plans with respect to the creation of CPKC.

Headquartered in Calgary, Altberta, CPKC will be the smallest of six U.S. Class 1 railroads by revenue. However, the combined company will have a much larger network, operating approximately 20,000 miles of rail, employing close to 20,000 people. Once combined, full integration of CP and KCS is expected to happen over the next three years.

CP president and CEO Keith Creel extended the company’s sincere gratitude to the STB board and staff for their hard work as part of the comprehensive review of the combination.

“This decision clearly recognizes the many benefits of this historic combination,” Creel said. “As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network, and drive economic growth. A combined CPKC will connect North America through a unique rail network able to enhance competition, provide improved reliable rail service, take trucks off public roads and improve rail safety by expanding CP’s industry-leading safety practices.”

Among the core conclusions reached by the STB regarding the public and pro-competitive benefits of the CP-KCS combination,┬áincluding that the combination “should ultimately enhance safety and benefit the environment”:

The STB said in its decision it expects the new single-line service will foster the growth of rail traffic, shifting approximately 64,000 truckloads annually from North America’s roads to rail, and will support investment in infrastructure, service quality, and safety. “Indeed, approval of this transaction may even enhance safety for the nation as a whole,” and that “any rail traffic diverted to CPKC from other railroads will likely mean traffic moving to a railroad with a better safety record,” the decision reads.

The transaction is also expected to add over 800 new union-represented operating positions in the United States.

The deal will mean CP and KCS will no longer need to interchange traffic moving from one system to the other. This will enhance efficiency, which in turn will enable the new CPKC system to better compete for traffic with the other larger Class I carriers, the decision says.

The board concluded, “The Transaction will make possible improved single-line service for many shippers and will result in merger synergies that are likely to allow CPKC to be a vigorous competitor to other Class Is by providing improved service at lower cost.”

CP completed its US$31 billion acquisition of KCS on Dec. 14, 2021. Immediately upon the closing of that acquisition, shares of KCS were placed into a voting trust with Dave Starling, former KCS President and CEO, appointed as the trustee. Upon Mr. Starling’s death, Ronald Batory was appointed as successor trustee with the STB’s approval.

The Voting Trust has ensured that KCS operates independently of CP during the regulatory review process, and until CP exercises control pursuant to the STB decision, CP and KCS will continue to operate independently.