By Hannah Farrell, Liam Ryan, Liam Smith (Trinity College Dublin), Ryan Horlick, Christina (Eugene) Lee, Britney Cheng (University of Michigan)
Overview of the deal
Acquirer: Canadian Pacific Railway Ltd
Target: Kansas City Southern
Implied Equity Value: $29 billion
Total Transaction Size: $25.2 (-$3.8 billion)
Closed date: H2 of 2021 (expected)
Acquirer advisors: BMO Capital Markets and Goldman Sachs
Target advisors: Bank of America and Morgan Stanley
On the 20th of March, the merger between Canadian Pacific and Kansas City Southern was announced. The merger would result in the first freight-rail network spanning across Canada, the United States, and Mexico. Under the deal, Kansas City Southern common shareholders will receive .489 of Canadian Pacific stock and $90 in cash for each share held, valuing Kansas City Southern at $275 per share. Kansas City Southern shareholders are expected to own 25% of Candian Pacific’s outstanding common shares, and Canadian Pacific will issue 44.5 million shares and raise about $8.6 billion in debt to fund the transaction.
As for some background information on the companies: Canadian Pacific is Canada’s second-largest railroad operator while Kansas City Southern has domestic and international rail operations in North America. The merger is highly complementary, as both companies highlighted the environmental benefits of the deal as it would help shift trucks off highways and subsequently cut emissions. This transaction came into play after multiple failed bids and merger negotiations with several other large networks across the United States. Additionally, this would be the largest deal ever involving two rail companies.
Company Details: (Acquirer - Canadian Pacific Railway Ltd)
Canadian Pacific Railway (CP) is a Canadian Class I railway that provides both rail and intermodal transportation services over a 13,000 mile-long network. The company owns and operates a transcontinental freight railway in Canada and the United States, serving business centers from Montréal, Québec to Vancouver, BC, and the U.S. Northeast and Midwest Regions. CP transports items including bulk commodities, merchandise freight, and intermodal traffic.
Founded in 1881 as the Canadian Pacific Rail Company, headquartered in Calgary, Alberta, Canada
CEO: Keith Creel
Number of employees: 12,000
Market Cap: $47.78B (as of 03/26/2021)
EV: $55.40 billion
LTM Revenue: $6.16B
LTM EBITDA: $3.51B
LTM EV/Revenue: 8.99x
LTM EV/EBITDA: 15.78x
Company Details: (Target - Kansas City Southern)
Kansas City Southern (KCS) is a pure transportation holding company with railroad investments in the United States, Mexico, and Panama. Their rail network includes about 6,700 miles of track in the U.S. and Mexico. Its primary American holding is the Kansas City Southern Railway, a Class I Railroad that operates through 10 states.
Founded in 1887, headquartered in Kansas City, Missouri, United States
CEO: Patrick J. Ottensmeyer
Number of employees: 6,655
Market Cap: $23.06B (as of 27/03/2021)
LTM Revenue: $2.63B
LTM EBITDA: $1.33B
LTM EV/Revenue: 10.27x
LTM EV/EBITDA: 20.31x