CP Shareholders OK Merger with KCS

Shareholders of Canadian Pacific today approved a merger with Kansas City Southern. KCS shareholders will vote on the merger on Friday.

The vast majority of CP stockholders approved the $31 billion deal, which involves CP buying KCS and putting it in a blind trust while U.S. regulators consider the merger.

Terms of the deal include CP issuing 277 million shares of CP common stock to KCS common stock holders.

Review of the merger by the U.S. Surface Transportation Board is expected to take much of 2022.

If the merger is approved the surviving company will operate as Canadian Pacific Kansas City.

CPKC to Retain CP Beaver, Shield

Canadian Pacific CEO Keith Creel said last week that the CP Beaver will figure prominently in the identity of Canadian Pacific Kansas City, but would not reveal details of what the locomotive livery will be.

Creel said during an interview with Trains magazine that he has some ideas about how to protect the identities of CP and its merger partner Kansas City Southern.

“We don’t want to get ahead of ourselves or send the wrong signal to the STB (Surface Transportation Board),” he said. “That being said, the answer would be I’ve got some ideas. We’re going to try to protect both companies’ proud histories. That matters.”

Upon becoming CP’s CEO in 2013, Creel brought back the iconic CP beaver and shield.

“Obviously the beaver is near and dear to our hearts,” Creel said. “The beaver will be part of that when it’s finalized; there’s no doubt in my mind.

“So it won’t be a huge retooling of our logo. It will be an enhancement that will honor the KCS team and I think we’ll make them proud to be a part of it. When it comes to locomotives, we haven’t gotten that far yet. That’s something when the time’s appropriate we’ll take a look at.”

Creel also said during the interview that once the merger is completed CPKC will put its 4-6-4 steam locomotive No. 2816 on a business train that will conduct a nearly 3,800-mile tour from Calgary to Mexico City.

Known as the Empress, the H1B Hudson was built in 1930 by Montreal Locomotive Works. Restored in 2001, it last operated in main line service in 2013.

As for the CPKC name, Creel said he chose that name as a way to honor the employees of both railroads.

“To me it’s about honoring our employees and honoring our histories,” he said adding that he understand some have been critical of the name.

In looking ahead to how CPKC will operate, Creel said traffic moving from KCS to Detroit and points in eastern Canada will continue to operate via Chicago.

Once that traffic arrives in Chicago it will move east on trackage rights on Norfolk Southern to Detroit via the NS Chicago Line to Butler, Indiana, and then to Detroit over the former Wabash mainline.

Creel said he envisions traffic growing to the point that a new tunnel will need to be built between Detroit and Windsor, Ontario, to handle double-stacked container trains.

CP owns the current Detroit River tunnel between those points but it cannot handle double-stacks.

Therefore the double-stacked traffic now moves and will continue to move for now via haulage rights on CSX between Chicago and Buffalo, New York, via Cleveland.

CP-KCS Outline Merger Timeline, New Name

Canadian Pacific and Kansas City Southern said on Thursday that shareholders of their respective companies will vote on their proposed merger in December.

The two railroads expect regulatory authorities in Mexico to review the merger over the next two to four months.

A merger application will be filed with the U.S. Surface Transportation Board in October and railroad officials are hoping to gain approval by October or November 2022.

The merged company is expected to be named Canadian Pacific Kansas City. It will have U.S. headquarters in Kansas City, but its primary headquarters will be in Calgary.

KCS is expected to be placed into a voting trust in the first quarter of 2022 with former KCS CEO David Starling serving as trustee.

The shareholders of KCS will receive $300 per share in a combination of cash and CP stock, which represents a 34 percent premium to the value of KCS stock price before the CP-KCS merger initially was announced last March. KCS shareholders will own 28 percent of CPKC.

CPKC will be the smallest North American Class 1 system by revenue.

Rail officials envision CPKC having $820 million in annual revenue growth from new traffic opportunities and $180 million in cost and efficiency savings.

KCS CEO Patrick Ottensmeyer said his CP counterpart Keith Creel suggested putting Kansas City into the new railroad’s name and making Kansas City the system’s U.S. headquarters.

Creel will serve as CEO of CPKC and continue to be based in Calgary.

He expects some shippers and Class I railroads will ask the STB for concessions as part of the merger review process but doesn’t expect there to be as many as have been granted in previous Class I mergers because the CP-KCS combination does not involve significant route overlap or a reduction in railroad options for some shippers.

Creel also said CPKC will keep all existing gateways and interchanges open as it seeks traffic growth, but added, “I’m not here to go to war with UP (Union Pacific) or BNSF or CN (Canadian National) or CSX or NS (Norfolk Southern).”