CP Rail Offers $25 Billion for Kansas City Southern

Canadian Pacific Railway Ltd. has offered to buy Kansas City Southern for $25 billion, according to people familiar with the transaction.

The Calgary-based company has offered $275 a share in a cash and stock deal, said the people, who asked not to be named because the information isn’t yet public. A transaction may be announced as soon as Sunday, one of the people said.

The price represents a 23% premium to Friday’s close of $224.16, when Kansas City Southern’s stock climbed to a record.

The transaction will give Canadian Pacific access to the Kansas City, Missouri-based company’s sprawling Midwestern rail network that connects farms in Kansas and Missouri to ports along the Gulf of Mexico. It would also give it reach to Mexico, which made up almost half of Kansas City Southern’s revenue last year, and create the only network that cuts through all three North American countries.

No filing has been posted with the U.S. Surface Transportation Board as of Friday, according to the regulator’s website.

The Financial Times earlier reported the offer. Representatives from both companies didn’t immediately return phone calls and emails seeking comment.

A successful deal would also come as trade across the three nations is expected to pick up under the Biden administration. Just days after his inauguration, U.S. President Joe Biden spoke with the leaders of Canada and Mexico, his first calls with foreign counterparts, where issues from trade to climate change were discussed.

Mexico is a crucial supplier of automobiles, electronics and food and a major customer of grain, fuel and consumer goods -- ties that are likely to be strengthened by July’s passage of the U.S.-Mexico-Canada trade pact.

Kansas City Southern’s unique network linking Mexico’s largest industrial cities and ports to the U.S. Midwest also would be positioned to benefit if the coronavirus pandemic and fraying ties between the U.S. and China prompt companies to move lower-wage manufacturing from Asia to North America.

The offer isn’t the only recent bid for Kansas City Southern. In September, Dow Jones reported that the company rejected a $20 billion offer from Blackstone Group Inc. and Global Infrastructure Partners.

Shares of Kansas City Southern have jumped 9.8% this year, more than twice the gain of the S&P 500 Index. Canadian Pacific, which rose to a record Thursday, climbed 7.4% for the year.

©2021 Bloomberg L.P.

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