Very encouraged by response to Kansas City Southern deal: CP Rail CEO
Canadian Pacific Railway Ltd. President and Chief Executive Officer Keith Creel is seeing some encouraging signs that main stakeholders are fully on board with the company’s plan to acquire Kansas City Southern for US$25.2 billion.
In an interview Friday, Creel said he’s seen a groundswell of support for the deal, which would expand CP’s existing network through the southern United States and into Mexico, opening up new shipping opportunities for the company’s existing customer base.
“Overall, we’ve had resounding support. Certainly, I’m not surprised, given the gravity of this, given the magnitude of this, the unparalleled network this creates: the optionality, the reach for our customers, the new markets that they don’t reach today, to allow our customers to grow. So not surprised at all, but very encouraged by the response,” he said.
The deal, if approved, would mark the first mega-merger in the Class 1 railway industry since the U.S. Surface Transportation Board implemented a new regulatory framework for mergers and acquisitions in 2001. The proposed transaction is facing a long review process, with an STB decision not expected until the middle of 2022.
CP Rail has been down this path before, with its hostile bid for Norfolk Southern collapsing in 2015 under the weight of regulatory uncertainty and pushback from the American rail operator. However, Creel said he’s optimistic the friendly offer for Kansas City Southern will meet a different fate, and has no intention of letting the bid process distract CP from executing on its current business plan.
“The most important thing we can do, whether this happens or doesn’t happen – and by the way, we believe it will – is make sure that we run our business day-to-day the way our customers expect us to run it and the way Canadian commerce requires for us to run it,” he said. “That’s to run it efficiently, to run it safely and provide service for our customers, which we’ve done in a resounding way.”
While the combined entity would operate about 20,000 miles of rail, employ 20,000 people and generate US$8.7 billion of annual revenue, it would still be the smallest of the six Class 1 railways operating in the United States. As a result of that smaller footprint compared to its peers, Creel said the company has no intention of cutting jobs and would in fact increase its headcount as it looks to grow its operations further.
“This is driven by growth. We’re talking about US$780 million of synergies, three quarters of which are revenue synergies, which means new lanes, new business opportunities. It means a need for more people, more cars, more locomotives, more track employees, more mechanical employees,” he said.
“Across the board, this is not about rationalization: this is about putting together two great companies to become even greater, to be unparalleled, to drive the North American economy and truly be the backbone of connecting these three countries on the heels of USMCA.”