Canadian Pacific Closes on Merger

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Canadian Pacific Closes on Merger
Canadian Pacific Railway Ltd. announced yesterday the completion of its $31 billion acquisition of Kansas City Southern, one of the largest transporters of base oil and lubricants from the United States into Mexico. © David Marion Photography

Canadian Pacific Railway Ltd. announced yesterday the completion of its $31 billion acquisition of Kansas City Southern, one of the largest transporters of base oil and lubricants from the United States into Mexico. The companies’ joint railroad control application with the U.S. Surface Transportation Board still awaits a decision, which is expected late next year.

The Canadian Pacific railroad system extends across Canada and the Upper Midwest in the United States. Kansas City Southern’s network runs through the southeast United States and Mexico. The two systems will connect in Kansas City, Missouri, where they already interchange and operate a shared facility.

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Canadian Pacific said that immediately upon the acquisition’s closing, KSC’s shares were placed into a voting trust with Dave Starling, former KSC president and CEO, appointed as voting trustee. The voting trust, which ensures KSC will operate independently of Canadian Pacific, will remain in effect until the U.S. Surface Transportation Board issues its decision on the companies’ joint railroad control application. The board’s approval of Canadian Pacific’s control of KCS would create Canadian Pacific Kansas City Ltd., the only single-line railroad linking the United States, Mexico and Canada. The STB review of the matter is expected to be completed in the fourth quarter of 2022.

Expected benefits from the business combination will not be realized until the STB approves Canadian Pacific’s control of KCS’ railroads, Canadian Pacific said in the news release. “Upon obtaining control approval from the STB, the two companies expect to achieve full integration over the ensuing three years, unlocking the benefits of the combination,” the company added.

“CPKC will become the backbone connecting our customers to new markets, enhancing competition in the U.S. rail network, and driving economic growth across North America while delivering significant environmental benefits,” Keith Creel, CP president and CEO, said in its news release.

In March, Canadian Pacific announced the acquisition of KSC, originally at $29 billion. In late April, Canadian National Railway made an unsolicited, higher $33.7 billion acquisition bid offer. Although KSC entered into negotiations with Canadian National Railway on the higher bid, it ultimately chose to go with Canadian Pacific’s revised $31 billion acquisition offer, announced in August.

The completed merger will likely impact the North American lubricants and base oils market. Canada-based manufacturers may have easier access to Mexico markets. Likewise, Mexican lube producers may enjoy a wider range of base oil options. Mexico typically buys about 30% of U.S. base oil exports, according to data from the U.S. Energy Information Administration.

Over the years, such carriers as Kansas City Southern de Mexico, Ferromex and Union Pacific have added facilities around the country that can handle base oils. Kansas City Southern de Mexico serves northeastern and central Mexico and the port cities of Lzaro Crdenas, Tampico and Veracruz.

Larger base oil manufacturers in the United States with close access to the expanded railway network include Motiva and its API Group II facility in Port Arthur, Texas; ExxonMobil and its Group I and Group II plant in Baytown, Texas; and a handful of manufacturers with facilities in Louisiana and Mississippi, including Ergon and Excel Paralubes.

In Canada, Petro-Canada operates a Group II and Group III facility in Mississauga.

Mexican state-owned oil company Pemex operates a large Group I plant in Salamanca, near where the network extends into Mexico City.