Canadian Pacific-KC Southern Tieup May Be the Last Big Rail Deal

Canadian Pacific Railway Ltd. has finally found the right target to realize its vision for railroad consolidation. The company agreed in March to acquire Kansas City Southern for $275 a share, or about $29 billion including debt. If completed, the merger would be the largest between two major North American railroads and the first successful one since the 1990s. Canadian Pacific’s failed attempts in recent years to acquire first CSX Corp. and then Norfolk Southern Corp. underscore why consummation of the Kansas City Southern acquisition is far from a fait accompli. But of all the possible railroad combinations, this is both the most strategically logical and the most likely to receive the blessing of regulators.

The combined tracks will form a “T” that stretches from Kansas City Southern’s routes deep inside Mexico, up through the U.S. Midwest, and along the Canadian border from the Pacific to the Atlantic. It’s a bet that the recently renegotiated U.S.-Mexico-Canada free-trade agreement and the supply chain snarls of the pandemic will bolster the appeal of manufacturing products closer to home—which in turn will create fresh revenue opportunities for the only rail network capable of ferrying goods seamlessly between the three countries. The efficiencies offered by the combined railroad could also help lure freight traffic away from trucks, which emit significantly more pollutants as an industry.