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Canadian Pacific Railway Ltd CP

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Kansas City Southern Deems CN’s Merger Proposal to Be Superior; Board Intends to Accept Deal

Matthew Young, CFA Equity Analyst

Analyst Note

| Matthew Young, CFA |

Kansas City Southern has deemed Canadian National’s previously announced merger offer to be "superior," and its board intends to terminate the Canadian Pacific agreement and accept CN’s offer. CN increased the number of shares that KCS shareholders will receive in order to keep its total consideration at $325 per share; CN’s share price has declined slightly since the original proposal. KCS shareholders will receive $200 in cash and 1.129 CN shares (previously 1.059 shares) for each KCS share held. Under the revised proposal, CN will also reimburse KCS for the $700 million termination fee it must pay Canadian Pacific. Overall, we are not surprised that KCS accepted CN’s proposal, given the much higher remuneration, though we originally saw a slight chance that KCS' board could hesitate due to potentially higher hurdles in securing Surface Transportation Board approval under a CN marriage (including for a voting trust). In a volley of press releases, CP has argued extensively that a CN deal will reduce competition due to overlapping routes in the United States. That remains to be seen.

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Company Profile

Business Description

Canadian Pacific is a CAD 7.7 billion railroad operating on 12,500 miles of track across most of Canada and into parts of the Midwestern and Northeastern United States. It is the second-smallest Class I railroad by revenue and route miles. In 2020, CP hauled shipments of grain (24% of freight revenue), intermodal containers (21%), energy products (like crude and frac sand), chemicals, and plastics (20%) coal (8%), fertilizer and potash (10%), automotive products (4%), and a diverse mix of other merchandise.

7550 Ogden Dale Road S.E.
Calgary, AB, T2C 4X9, Canada
T +1 403 319-3591
Sector Industrials
Industry Railroads
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 12,398