Dive Brief:
- Canadian Pacific has agreed to acquire Kansas City Southern in a $29 billion deal, and the two companies announced plans Sunday to combine their businesses and networks. The deal is still subject to final approval by the Surface Transportation Board. The company will be called Canadian Pacific Kansas City, once approved.
- The combined rail networks would create the first such service to stretch across Canada, the United States and Mexico. "It is an unmatched, unparalleled North American footprint," KCS CEO Pat Ottensmeyer said on a conference call Sunday after the announcement.
- The companies said they expect shippers to benefit, specifically highlighting the automotive, grain and intermodal markets as areas that could gain from increased connectivity.
Dive Insight:
KCS noted that the combined railroads would still be the smallest Class I railroad by revenue. But the larger network would allow to the company to offer connection to ports in the U.S. Gulf, Atlantic and Pacific coasts. And it means that automotive manufacturers in the U.S. Midwest would be able to connect with suppliers in Mexico through the same rail line.
"We see growth opportunities across all our lines of business," CP Chief Marketing Officer John Brooks said Sunday.
Brooks highlighted the agriculture industry specifically.
"It's really a game-changer, in terms of what this combination is going to do," Brooks said. "This deal links the origination and production-rich origins that we have to new export and domestic consumption markets that we simply can't get to alone today."
The combined company also expects to use its network to better compete against over-the-road trucking freight. Both companies have spoken separately in recent months about seeing intermodal as a potential growth opportunity for their businesses.
"As I've looked at the intermodal and truck traffic moving cross-border from Mexico, coming up to Chicago and Detroit, Minneapolis, up into Canada and into Toronto, there is just a massive amount of freight that should be moving over the rail network," Brooks said. "We are going to offer a service that doesn't exist today. It will be a single linehaul move."
KCS' current network already connects to 16 automotive plants in Mexico, Brooks said, noting about 80% of that volume moves into the U.S. or Canada.
KCS and CP don't compete with their current networks, executives said, but they do both connect in Kansas City, Missouri.
CP CEO Keith Creel said in a statement that the companies would be talking with customers "in the coming months" about how they can take advantage of the new network.
