Canadian Pacific’s Merger With Kansas City Southern Is Approved

The STB said the deal would “improve the overall quality and availability of rail transportation services” and present a stronger competitor to

Union Pacific Corp.

UNP -2.45%

, BNSF and Canadian National.

The merger had received pushback from other federal agencies, some communities and rail customers since it was announced in September 2021 after a bidding war emerged for Kansas City Southern.

Canadian Pacific and Kansas City Southern are the smallest by revenue among the seven Class I railroads, which are the country’s largest movers of freight along rails. Even after the combination, CPKC will still be the smallest.

The STB approval also comes as the industry’s operations are under scrutiny as a result of recent derailments and mounting safety concerns at major freight railroads.

“This decision clearly recognizes the many benefits of this historic combination,” Canadian Pacific Chief Executive

Keith Creel

said. “As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network, and drive economic growth.”

Canadian Pacific shares rose about 7% in New York trading.

The STB said that its approval includes requirements aimed at protecting competition, including implementing a seven-year oversight period with data-reporting requirements. CPKC would have to keep gateways, or connection points between the merged railroad and other railroads, open on reasonable terms, said the regulator. Upon customers’ request, CPKC will also have to justify rate increases above a certain level.

The STB also addressed concerns about the merger resulting in more transports of hazardous material, a concern raised by officials from Illinois following last month’s derailment of a

Norfolk Southern Corp.

train and release of toxic chemicals in East Palestine, Ohio. The STB said that it had earlier conducted an environmental impact study and considered the transaction’s potential safety impacts on Chicago-area communities and “found that the chance of a hazardous material release is and will remain low.”

The Justice Department was one of the federal agencies requesting that the STB carefully scrutinize the effects of the industry becoming more concentrated. It warned that the deal could reduce incentives to invest in and implement new technologies and make industrywide agreements like fuel-surcharge programs harder to address.

Commissioners at the Federal Maritime Commission had also earlier opposed the merger, saying that ports and intermodal railway systems in Canada will disproportionately benefit at the expense of their U.S. counterparts from the transport of U.S.-bound cargo.

Canadian Pacific clinched a cash-and-stock deal in September 2021 to take over the Kansas City, Mo., railroad, besting its rival Canadian National. The STB opposed Canadian National’s bid to acquire Kansas City Southern.

Canadian Pacific later provided $1.4 billion to cover merger termination fees owed to Canadian National. The deal closed later that year, but the railroads have operated independently pending the STB’s review.

The combined CPKC network would include about 20,000 miles of track in total, including 8,600 miles in the U.S. Canadian Pacific’s network currently extends across Canada and into northern U.S. cities such as Chicago, Detroit and New York. Kansas City Southern’s network connects the Midwest on lines through Southern states and to Mexico.

The STB held a seven-day public hearing on the merger this past September. Parties affected by the deal voiced their concerns on whether rail networks would remain fluid and if competition would be affected.

Rail customers said during the hearing that they are worried that the combined railroad would impose conditions that make it more difficult for them to switch their shipments to other railroads. Regulators have also pushed railroads to improve service as customer complaints have piled up through the pandemic.

Executives at Canadian Pacific said the proposed acquisition would create operational efficiencies and would divert freight from other railroads and from trucks. The company also said it planned to make investments in improving the track network to accommodate an anticipated increase in rail traffic.

Write to Esther Fung at [email protected]

The STB said the deal would “improve the overall quality and availability of rail transportation services” and present a stronger competitor to

Union Pacific Corp.

UNP -2.45%

, BNSF and Canadian National.

The merger had received pushback from other federal agencies, some communities and rail customers since it was announced in September 2021 after a bidding war emerged for Kansas City Southern.

Canadian Pacific and Kansas City Southern are the smallest by revenue among the seven Class I railroads, which are the country’s largest movers of freight along rails. Even after the combination, CPKC will still be the smallest.

The STB approval also comes as the industry’s operations are under scrutiny as a result of recent derailments and mounting safety concerns at major freight railroads.

“This decision clearly recognizes the many benefits of this historic combination,” Canadian Pacific Chief Executive

Keith Creel

said. “As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network, and drive economic growth.”

Canadian Pacific shares rose about 7% in New York trading.

The STB said that its approval includes requirements aimed at protecting competition, including implementing a seven-year oversight period with data-reporting requirements. CPKC would have to keep gateways, or connection points between the merged railroad and other railroads, open on reasonable terms, said the regulator. Upon customers’ request, CPKC will also have to justify rate increases above a certain level.

The STB also addressed concerns about the merger resulting in more transports of hazardous material, a concern raised by officials from Illinois following last month’s derailment of a

Norfolk Southern Corp.

train and release of toxic chemicals in East Palestine, Ohio. The STB said that it had earlier conducted an environmental impact study and considered the transaction’s potential safety impacts on Chicago-area communities and “found that the chance of a hazardous material release is and will remain low.”

The Justice Department was one of the federal agencies requesting that the STB carefully scrutinize the effects of the industry becoming more concentrated. It warned that the deal could reduce incentives to invest in and implement new technologies and make industrywide agreements like fuel-surcharge programs harder to address.

Commissioners at the Federal Maritime Commission had also earlier opposed the merger, saying that ports and intermodal railway systems in Canada will disproportionately benefit at the expense of their U.S. counterparts from the transport of U.S.-bound cargo.

Canadian Pacific clinched a cash-and-stock deal in September 2021 to take over the Kansas City, Mo., railroad, besting its rival Canadian National. The STB opposed Canadian National’s bid to acquire Kansas City Southern.

Canadian Pacific later provided $1.4 billion to cover merger termination fees owed to Canadian National. The deal closed later that year, but the railroads have operated independently pending the STB’s review.

The combined CPKC network would include about 20,000 miles of track in total, including 8,600 miles in the U.S. Canadian Pacific’s network currently extends across Canada and into northern U.S. cities such as Chicago, Detroit and New York. Kansas City Southern’s network connects the Midwest on lines through Southern states and to Mexico.

The STB held a seven-day public hearing on the merger this past September. Parties affected by the deal voiced their concerns on whether rail networks would remain fluid and if competition would be affected.

Rail customers said during the hearing that they are worried that the combined railroad would impose conditions that make it more difficult for them to switch their shipments to other railroads. Regulators have also pushed railroads to improve service as customer complaints have piled up through the pandemic.

Executives at Canadian Pacific said the proposed acquisition would create operational efficiencies and would divert freight from other railroads and from trucks. The company also said it planned to make investments in improving the track network to accommodate an anticipated increase in rail traffic.

Write to Esther Fung at [email protected]