Introduction
Finally. It’s done.
After Canadian Pacific (NYSE:CP) and Kansas City Southern agreed to merge in 2021, the Class I railroad pair finally received final permission from the Surface Transportation Board to combine assets. In April, the company will be officially known as CPKC, which means it will combine Canada, the United States, and Mexico. In this article, I’ll walk you through the details of the STB decision and why I am so excited to own this stock – especially in light of ongoing supply chain developments that favor North American supply chain re-shoring.
So, as there’s a lot to discuss, let’s get to it!
KSU or KCS?
But first, a quick note. In the railroad industry, Kansas City Southern is known as KCS, which is the straightforward three-letter abbreviation. However, Kansas City Southern was trading under the KSU ticker. So, please don’t be confused when I use KSU instead of KCS when discussing the southern part of the CPKC merger.
A Done Deal That Opens Up New Possibilities
The CPKC merger comes with benefits for clients and shareholders, yet the STB has some conditions.
I initially bought Canadian Pacific in 2021, when its stock price was highly volatile due to merger talks with KSU. Back then, both Canadian Pacific and Canadian National (CNI) were in a bidding war for KSU. Canadian National, the larger Canadian railroad, initially won that battle. However, the STB rejected it. There was too much overlap, which would have hurt competition in the industry. It was a no-brainer to reject the CNI takeover of KSU.
After this rejection, CP agreed to buy KSU in a deal with a $31 billion enterprise value. If you want a full timeline of the drama that occurred back then, feel free to read this Reuters article.
In December of the same year, both companies entered into a voting trust after KSU shareholders received CP shares and additional cash.
Since then, there was not much progress as the companies were not permitted to merge officially until the STB’s final decision, which took longer than anticipated.
That said, on March 15, the news finally broke: CP and KSU were allowed to merge!