Canadian Pacific Railway to buy Kansas City Southern for $25 billion

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Leroy N. Soetoro

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Mar 23, 2021, 1:11:26 PM3/23/21
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https://www.cnbc.com/2021/03/21/canadian-pacific-railway-to-buy-kansas-
city-southern-for-25-billion-.html

Canadian Pacific Railway on Sunday said it has agreed to buy Kansas City
Southern for $25 billion in a cash-and-shares deal to create the first
rail network connecting the United States, Mexico, and Canada, betting on
a pick-up in North American trade.

Shareholders of Kansas City Southern will receive 0.489 of a Canadian
Pacific share and $90 in cash for each KCS common share held, the
companies said in a joint statement. The deal, which has an enterprise
value of $29 billion including debt, values Kansas City Southern at $275
per share, representing a 23% premium to Friday’s closing price of
$224.16.

The transaction is the biggest M&A launched in 2021.

“The new competition we will inject into the North American transportation
market cannot happen soon enough, as the new USMCA Trade Agreement among
these three countries makes the efficient integration of the continent’s
supply chains more important than ever before,” Canadian Pacific Chief
Executive Keith Creel said in the statement. “This will create the first
U.S.-Mexico-Canada railroad.”

The new and modernized U.S.-Mexico-Canada trade pact took effect in July
last year, replacing the earlier deal that lasted 26 years, and is
expected to further foster manufacturing and agriculture trade activities
among the three countries.

Kansas City Southern’s board has approved the bid and the two companies
have notified the U.S. Surface Transportation Board to seek the agency’s
required approval. Canadian railroad operators’ attempts to buy U.S. rail
companies have met limited success because of antitrust concerns.

Creel will continue to serve as CEO of the combined company, which will be
headquartered in Calgary, the statement said.

The deal comes amid expectations of a pick-up in U.S.-Mexico trade after
Joe Biden replaced Donald Trump as U.S. president.

The companies also highlighted the environmental benefits of the deal,
saying the new single-line routes that would be created by the combination
are expected to shift trucks off crowded U.S. highways, and cut emissions.

Rail is four times more fuel efficient than trucking, and one train can
keep more than 300 trucks off public roads and produce 75% less greenhouse
gas emissions, the companies said in a joint statement.

Shareholders in Kansas City Southern are expected to own 25% of Canadian
Pacific’s outstanding common shares after the deal, the companies said.

Canadian Pacific said it will issue 44.5 million new shares and raise
about $8.6 billion in debt to fund the transaction.

The Financial Times first reported on the deal.

Calgary-based Canadian Pacific is Canada’s No. 2 railroad operator, behind
Canadian National Railway Co Ltd, with a market value of $50.6 billion.

It owns and operates a transcontinental freight railway in Canada and the
United States. Grain haulage is the company’s biggest revenue driver,
accounting for about 58% of bulk revenue and about 24% of total freight
revenue in 2020.

Kansas City Southern has domestic and international rail operations in
North America, focused on the north-south freight corridor connecting
commercial and industrial markets in the central United States with
industrial cities in Mexico.

Canadian Pacific’s latest attempt to expand its U.S. business comes after
it dropped a hostile $28.4 billion bid for Norfolk Southern Corp in April
2016. Canadian Pacific’s merger talks with CSX Corp, which owns a large
network across the eastern United States, failed in 2014.

A bid by Canadian National Railway Co, the country’s biggest railroad, to
buy Warren Buffett-owned Burlington Northern Santa Fe was blocked by U.S.
antitrust authorities in 1999-2000.

BMO Capital Markets and Goldman Sachs & Co. LLC are serving as financial
advisors to Canadian Pacific, while BofA Securities and Morgan Stanley &
Co. LLC are serving as financial advisors to Kansas City Southern.



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DisneyWizard the Fantasmic!

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Dec 8, 2021, 8:50:40 PM12/8/21
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Canadian Pacific just did a 4:1 stock split. to go deep into (very
cheap) debt so that now I have to file a Canadian Income Tax in French?
Do I file in Canadian Dollars too? I like the idea that the combination
would progress toward efficiency but CP would close a key corridor, one
of two North/South routes serving the U.S. South negating carbon offsets
by burdening area highways with truck traffic to compensate the loss.

A better solution would be for Kansas City Southern capitalize by stock
split and re-issue while interest rates are low and buy overextended CN
instead.
I go out of my way to buy American - I don't like being forced to own
Canadian.

Can you save us Mr. Buffett?
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DisneyWizard the Fantasmic!

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Dec 8, 2021, 8:51:37 PM12/8/21
to
Canadian Pacific just did a 4:1 stock split. to go deep into (very
cheap) debt so that now I have to file a Canadian Income Tax in French?
Do I file in Canadian Dollars too? I like the idea that the combination
would progress toward efficiency but CP would close a key corridor, one
of two North/South routes serving the U.S. South negating carbon offsets
by burdening area highways with truck traffic to compensate the loss.

A better solution would be for Kansas City Southern capitalize by stock
split and re-issue while interest rates are low and buy overextended CN
instead.
I go out of my way to buy American - I don't like being forced to own
Canadian.

Can you save us Mr. Buffett?
On 3/23/2021 10:11 AM, Leroy N. Soetoro wrote:

John Levine

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Dec 9, 2021, 12:01:08 PM12/9/21
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According to DisneyWizard the Fantasmic! <"//disneywizardangelfire.com/contact.html#form">:
>Canadian Pacific just did a 4:1 stock split. to go deep into (very
>cheap) debt so that now I have to file a Canadian Income Tax in French?
>Do I file in Canadian Dollars too? I like the idea that the combination
>would progress toward efficiency but CP would close a key corridor, one
>of two North/South routes serving the U.S. South negating carbon offsets
>by burdening area highways with truck traffic to compensate the loss.
>
>A better solution would be for Kansas City Southern capitalize by stock
>split and re-issue while interest rates are low and buy overextended CN
>instead.

In the eight months since the message you're replying to, CN put in
a counterbid which failed because it was clear that regulators would
never approve it. CP shareholders approved the deal this week, KCS
will merge on the 14th.

If you're a KCS shareholder you'll get some cash and some CP stock.
If you don't like CP stock, sell it. It's not hard, it's listed
on the NYSE.

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Please consider the environment before reading this e-mail. https://jl.ly

umar

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Dec 13, 2021, 10:42:24 AM12/13/21
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> Can you save us Mr. Buffett?

I thought I remember reading that Warren Buffett doesn't think KCS is
worth what CP is paying for it.


umar
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