Canadian Pacific Railway (CP) announced Wednesday that it has entered into a merger agreement with U.S. railway Kansas City Southern (KSU), which terminated its proposed deal with Canadian National Railway (CNR). CP agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately C$31 billion.
Under the new agreement, KCS shareholders will receive C$90 in cash, and 2.884 common shares of CP for each share held.
CP president and CEO Keith Creel said, “Our path to this historic agreement only reinforces our conviction in this once-in-a-lifetime partnership. We are excited to get to work bringing these two railroads together. By combining, we will unlock the full potential of our networks and our people while providing industry-best service for our customers.
“This perfect end-to-end combination creates the first U.S.-Mexico-Canada rail network with new single-line offerings that will deliver dramatically expanded market reach for CP and KCS customers, provide new competitive transportation options, and support North American economic growth.”
The combined company is expected to generate annualized synergies of approximately C$1 billion within three years. (See Canadian Pacific stock charts on TipRanks)
On September 13, CIBC analyst Kevin Chiang maintained a Buy rating on CP, and a C$106 price target. This implies 21.6% upside potential.
Overall, consensus on the Street is that CP is a Moderate Buy, based on seven Buys and five Holds. The average Canadian Pacific price target of C$105.74 implies 21.4% upside potential to current levels.