It’s always encouraging to see a smaller company expand and do well. That’s what Canadian Pacific Railway is attempting to do with its proposed merger with Kansas City Southern Railway.
Canadian Pacific made the offer to Kansas City Southern to create the first U.S.-Mexico-Canada network. Such a network would be beneficial to North Dakota producers by providing access to markets to the north and south for commodities.
At present, Canadian Pacific has about a 25% share of the North Dakota market. Along with ag commodities, it ships oil out of New Town. A merger would help the company grow. Canadian Pacific is one of the smallest Class 1 railroads.
The U.S. Surface Transportation Board gave approval to Canadian Pacific and Kansas City Southern to proceed with the merger under rules prior to those adopted in 2001. This will allow the merger to be completed in a shorter time frame.
The Surface Transportation Board also approved the use of a voting trust. If shareholders of both companies agree, Canadian Pacific would acquire Kansas City shares and put them in the trust. Kansas City would continue to operate the railroad until the merger is complete.
If the companies merge into one, it would operate approximately 20,000 miles of rail, employ nearly 20,000 workers and generate total revenue of about $8.7 billion based on 2020 results.
That’s all in doubt after Canadian National Railway made a counter offer for Kansas City Southern. The Canadian National offer is more lucrative for Kansas City shareholders. Canadian National also asked the Surface Transportation Board to allow it to proceed with the merger under the old rules and create a voting trust. That hasn’t been decided yet, with the board taking comments.
If Canadian National can’t move forward under the old rules and with a voting trust, it makes its offer less appealing. A merger would take longer under the new merger rules.
Canadian Pacific has been gaining support in North Dakota. This week the state’s congressional delegation sent a letter to the Surface Transportation Board supporting the Canadian Pacific-Kansas City Merger.
Senators John Hoeven and Kevin Cramer and Rep. Kelly Armstrong, all Republicans, argued in the letter that the merger would provide more markets for North Dakota producers by providing access to Mexico. They also said the merger would give North Dakota a more direct route to southern U.S. markets.
If Canadian Pacific can pull off the merger with Kansas City, it will be beneficial for North Dakota. Canada and Mexico are key markets for the state, and having one railroad serving both nations will provide easier access to them.
The Canadian National offer will be difficult to beat. Canadian National offered more and Canadian Pacific didn’t up its offer. How much clout North Dakota’s support for Canadian Pacific will have remains to be seen.