{"id":8248,"date":"2021-03-22T22:57:42","date_gmt":"2021-03-22T22:57:42","guid":{"rendered":"https:\/\/www.pantheregroup.com\/2021\/03\/22\/cp-deal-could-be-easier-sell-in-wake-of-continental-trade-deal-and-pandemics-economic-shifts\/"},"modified":"2021-03-22T22:57:42","modified_gmt":"2021-03-22T22:57:42","slug":"cp-deal-could-be-easier-sell-in-wake-of-continental-trade-deal-and-pandemics-economic-shifts","status":"publish","type":"post","link":"https:\/\/www.pantheregroup.com\/2021\/03\/22\/cp-deal-could-be-easier-sell-in-wake-of-continental-trade-deal-and-pandemics-economic-shifts\/","title":{"rendered":"CP deal could be easier sell in wake of continental trade deal and pandemic&#8217;s economic shifts"},"content":{"rendered":"<p> \n<\/p>\n<div id=\"\">\n<header aria-label=\"Beginning of Article\" class=\"article-header\">\n<nav aria-label=\"Breadcrumb\" class=\"breadcrumbs\">\n<h2 class=\"visually-hidden\">Breadcrumb Trail Links<\/h2>\n<ol class=\"breadcrumbs__items list-unstyled\">\n<li class=\"breadcrumbs__item\"> Rail <\/li>\n<li class=\"breadcrumbs__item\"> Economy <\/li>\n<\/ol>\n<\/nav>\n<p class=\"article-subtitle\"> If the deal receives approval from shareholders and the U.S. regulator, it would create the first rail network connecting Canada, Mexico and the United States <\/p>\n<div class=\"article-meta\">\n<div class=\"published-by\">\n<p>Author of the article:<\/p>\n<p> <span class=\"published-by__author\">Geoff Zochodne<\/span> <\/div><\/div>\n<figure class=\"featured-image\"><picture class=\"featured-image__ratio featured-image-category__economy\"><source media=\"(min-width: 1200px)\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1-1.png?quality=90&amp;strip=all&amp;w=564&amp;type=webp,&#10;            https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1-1.png?quality=90&amp;strip=all&amp;w=1128&amp;type=webp 2x\" type=\"image\/webp\"\/><source media=\"(min-width: 1200px)\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1-1.png?quality=90&amp;strip=all&amp;w=564&amp;type=jpg,&#10;            https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1-1.png?quality=90&amp;strip=all&amp;w=1128&amp;type=jpg 2x\" type=\"image\/jpeg\"\/><source media=\"(min-width: 768px)\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1-1.png?quality=90&amp;strip=all&amp;w=472&amp;type=webp,&#10;            https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1-1.png?quality=90&amp;strip=all&amp;w=944&amp;type=webp 2x\" type=\"image\/webp\"\/><source media=\"(min-width: 768px)\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1-1.png?quality=90&amp;strip=all&amp;w=472&amp;type=jpg,&#10;            https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1-1.png?quality=90&amp;strip=all&amp;w=944&amp;type=jpg 2x\" type=\"image\/jpeg\"\/><source media=\"(max-width: 767px)\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1-1.png?quality=90&amp;strip=all&amp;w=288&amp;type=webp,&#10;            https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1-1.png?quality=90&amp;strip=all&amp;w=576&amp;type=webp 2x\" type=\"image\/webp\"\/><\/picture><figcaption class=\"featured-image__caption image-caption\"><span class=\"caption\">A Canadian Pacific Railway train in Calgary on Monday, March 22, 2021.<\/span> <span class=\"credit\">Photo by Alex Ramadan\/Bloomberg<\/span> <\/figcaption><\/figure>\n<\/header>\n<section class=\"article-content__content-group\">\n<h2 class=\"visually-hidden\">Article content<\/h2>\n<p>Canadian Pacific Railway Ltd. could be bidding for Kansas City Southern at an opportune time, as the proposed deal aims to create a massive North American rail network in the wake of the new NAFTA agreement and amid a pandemic that may make regional trade ties an easier sell.<\/p>\n<p>Calgary-based CP and Kansas City, Mo.-headquartered KCS announced on Sunday they\u2019d entered into a merger agreement that would see CP buy KCS for approximately US$25 billion in stock and cash.<\/p>\n<p>If the deal receives approval from shareholders and the U.S. Surface Transportation Board, it would create the first rail network connecting Canada, Mexico and the United States.<\/p>\n<p>\u201cThe new competition we will inject into the North American transportation market cannot happen soon enough, as the new USMCA Trade Agreement among these three countries makes the efficient integration of the continent\u2019s supply chains more important than ever before,\u201d CP chief executive officer Keith Creel said in a press release.<\/p>\n<\/section>\n<div class=\"ad__section-border article-content__ad-group\">\n<section class=\"ad\">\n<h2 class=\"visually-hidden\">Advertisement<\/h2>\n<div class=\"ad__container\">\n<div class=\"ad__inner\" id=\"ad__inner-1\">\n<div class=\"ad__placeholder\">\n<p> This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div>\n<\/section>\n<\/div>\n<section class=\"article-content__content-group\">\n<h2 class=\"visually-hidden\">Article content<\/h2>\n<p data-async=\"\">It is those types of economic arguments that could be key selling points for a transaction that has hurdles still to clear and some tough history to overcome. For instance, CP in 2016 dropped its attempt to acquire rival Norfolk Southern Corp. after facing pushback to the takeover, including from the U.S. army.<\/p>\n<section aria-labelledby=\"moreTopicLabel5663992248007787867085808896835181\" class=\"more-topic\" data-carousel-icon-button=\"\" data-carousel-type=\"list\"><button aria-hidden=\"true\" class=\"more-topic__button-prev\" data-carousel-prev=\"\" tabindex=\"-1\" title=\"previous\" type=\"button\"\/><\/p>\n<ol class=\"more-topic__items list-unstyled\" data-carousel-slide-list=\"\" tabindex=\"0\">\n<li class=\"more-topic__item\" data-carousel-item=\"\"><picture class=\"more-topic__item-image\"><img decoding=\"async\" alt=\"The Canadian Pacific railyard is pictured in Port Coquitlam, B.C. The proposed merger of CP and Kansas City Southern is being touted as a 'stabilizing' deal for the sector.\" class=\"lazyload\" src=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1.png?h=96&amp;strip=all&amp;quality=80\" height=\"96\" loading=\"lazy\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1.png?h=96&amp;strip=all&amp;quality=80,&#10;                                    https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1.png?h=192&amp;strip=all&amp;quality=80 2x,&#10;                                    https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/CP-1.png?h=288&amp;strip=all&amp;quality=80 3x\" width=\"96\"\/><\/picture>\n<h3 class=\"more-topic__item-text\"><span class=\"more-topic__item-text-clamp\"> CP Rail&#8217;s purchase of U.S. rival is a bet on production moving out of China in COVID-19 aftermath <\/span><\/h3>\n<\/li>\n<li class=\"more-topic__item\" data-carousel-item=\"\"><picture class=\"more-topic__item-image\"><img decoding=\"async\" alt=\"The combined CP\/KCS railway network could introduce some competition among the railways to move oil barrels.&#10;\" class=\"lazyload\" src=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/cprail0322.jpg?h=96&amp;strip=all&amp;quality=80\" height=\"96\" loading=\"lazy\" srcset=\"https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/cprail0322.jpg?h=96&amp;strip=all&amp;quality=80,&#10;                                    https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/cprail0322.jpg?h=192&amp;strip=all&amp;quality=80 2x,&#10;                                    https:\/\/smartcdn.prod.postmedia.digital\/financialpost\/wp-content\/uploads\/2021\/03\/cprail0322.jpg?h=288&amp;strip=all&amp;quality=80 3x\" width=\"96\"\/><\/picture>\n<h3 class=\"more-topic__item-text\"><span class=\"more-topic__item-text-clamp\"> Canadian oil producers see new route to Gulf Coast refineries coming from CP Rail deal <\/span><\/h3>\n<\/li>\n<\/ol>\n<p><button aria-hidden=\"true\" class=\"more-topic__button-next\" data-carousel-next=\"\" tabindex=\"-1\" title=\"next\" type=\"button\"\/><\/section>\n<p>This time around, however, the structure and timing might be more suitable, as the USMCA trade deal could present the continent-spanning transaction in a more favourable light. The COVID-19 pandemic has also provided an argument for supply chains that are closer to home, as its arrival disrupted overseas trade ties.<\/p>\n<p>Raymond James analyst Steve Hansen wrote that merger timing \u201cis always difficult in the rail industry,\u201d but suggested that the economic backdrop is favourable for the transaction. There is the USMCA agreement, as well as \u201cinfluential new investment themes impacting global supply chains (i.e. domestic near-sourcing),\u201d which align well with the deal, Hansen wrote.<\/p>\n<p>\u201cThe fact that COVID is finally fading, and the macro outlook is highly constructive, are both also deemed incremental positives, in our view,\u201d Hansen added.<\/p>\n<p>A combined network of CP and KCS would provide \u201cdramatically expanded market reach for customers,\u201d the railways say, and support the growth of the North American economy. The combined \u201cCanadian Pacific Kansas City\u201d would operate 20,000 miles or so of rail, employ nearly 20,000 workers and generate around US$8.7 billion in total revenue.<\/p>\n<\/section>\n<div class=\"ad__section-border article-content__ad-group\">\n<section class=\"ad\">\n<h2 class=\"visually-hidden\">Advertisement<\/h2>\n<div class=\"ad__container\">\n<div class=\"ad__inner\" id=\"ad__inner-2\">\n<div class=\"ad__placeholder\">\n<p> This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div>\n<\/section>\n<\/div>\n<section class=\"article-content__content-group\">\n<h2 class=\"visually-hidden\">Article content<\/h2>\n<p>CP and KCS also say the combined entity would provide a link to and from \u201cpremier ports\u201d on the Gulf of Mexico and the Atlantic and Pacific oceans for customers in the agriculture, auto and energy sectors, among others. Indeed, with the Gulf included, it would give the combined network not only cost-to-coast reach, but \u201ccoast-to-coast-to-coast,\u201d noted Clarence Woudsma, a professor at the University of Waterloo\u2019s School of Planning.<\/p>\n<p>\u201cIt\u2019s now a firm establishment of a prior relationship,\u201d Woudsma added.<\/p>\n<p>CP and KCS already run a shared facility in Kansas City, where their respective networks connect. It\u2019s that kind of connection that may be another selling point for the deal as well.<\/p>\n<p>National Bank Financial analyst Cameron Doerksen wrote in a note to clients that the deal is a \u201clogical combination,\u201d with their networks essentially avoiding any overlap.<\/p>\n<p>\u201cThe North-South network the combination creates would be particularly advantageous for grain, intermodal and automotive volumes,\u201d Doerksen wrote. \u201cWith the new USMCA trade agreement and trade between Mexico and the United States expected to grow (potentially supported by increased near-shoring of manufacturing back to North America), the timing for this deal appears to be favourable.\u201d<\/p>\n<p data-async=\"\">There could be benefits for other sectors, too. Alberta Premier Jason Kenney <a data-evt=\"click\" data-evt-typ=\"User Interaction Click\" data-evt-val=\"{\" control_fields=\"\" source=\"\" type=\"\" name=\"\" target=\"\" url=\"\" vertical=\"\" position=\"\" pixels=\"\" link=\"\" href=\"https:\/\/twitter.com\/jkenney\/status\/1373655288520220676\" rel=\"noopener nofollow\">tweeted<\/a> on Sunday that the combined rail network \u201cwill give CP direct access to the US Gulf Coast &amp; beyond, allowing it seamlessly to transport Alberta energy directly to Gulf Coast refineries, improving the economics of crude by rail.\u201d<\/p>\n<\/section>\n<div class=\"ad__section-border article-content__ad-group\">\n<section class=\"ad\">\n<h2 class=\"visually-hidden\">Advertisement<\/h2>\n<div class=\"ad__container\">\n<div class=\"ad__inner\" id=\"ad__inner-3\">\n<div class=\"ad__placeholder\">\n<p> This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div>\n<\/section>\n<\/div>\n<section class=\"article-content__content-group\">\n<h2 class=\"visually-hidden\">Article content<\/h2>\n<p>Regulatory hurdles may not be as daunting either. CIBC World Markets analyst Kevin Chiang noted that CP\u2019s bid is a friendly one, that the combined entity would remain the smallest of the so-called Class I railroads, and that the two firms don\u2019t compete head-to-head.<\/p>\n<p data-async=\"\">Furthermore, the Surface Transportation Board (STB) in 2001 exempted Kansas City Southern from a greater burden to show that major railway M&amp;A is in the public interest.<\/p>\n<p>\u201cCP is assuming the STB will treat its acquisition of KCS as a minor merger and that it will maintain its waiver related to STB\u2019s major rail consolidation decision,\u201d Chiang wrote.<\/p>\n<p data-async=\"\"><em>\u2022 Email: gzochodne@postmedia.com | Twitter: <a class=\"twitter-follow-button\" data-evt=\"click\" data-evt-typ=\"User Interaction Click\" data-evt-val=\"{\" control_fields=\"\" source=\"\" type=\"\" name=\"\" target=\"\" url=\"\" vertical=\"\" position=\"\" pixels=\"\" link=\"\" href=\"https:\/\/twitter.com\/geoffzochodne\" rel=\"noopener nofollow\">GeoffZochodne<\/a><\/em><\/p>\n<\/section>\n<section class=\"article-content__share-group article-delimiter\" data-evt=\"beforeunload\" data-evt-typ=\"scroll-depth\" data-evt-val=\"{\" control_fields=\"\" of=\"\" page=\"\" viewed=\"\" story=\"\">\n<h2 class=\"visually-hidden\">Share this article in your social network<\/h2>\n<\/section>\n<div class=\"widget article-content__widget-group article-content__widget-group--slot1\">\n<section aria-labelledby=\"TheLogic9148090797358151455547994841733565\" class=\"feed-section feed-section--partner-story list-widget--partner-story the-logic\" data-async=\"\">\n<div class=\"widget-title widget-title--partner-story flex-align-center row row--no-padding--left row--no-padding--right\">\n<p> In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post. <\/p>\n<\/p><\/div>\n<\/section>\n<\/div>\n<div class=\"widget article-content__widget-group article-content__widget-group--slot2\">\n<section aria-labelledby=\"TopStoriesNewsletter1582158571802759321765929229726554\" class=\"newsletter-widget\" data-account-id=\"b9d3df2fccd108b5eff3c44f573b2cd6\" data-target-list=\"FP_HeadlineNews\" data-widget=\"newsletter\">\n<div class=\"newsletter-widget__body\">\n<h2 id=\"TopStoriesNewsletter1582158571802759321765929229726554\">Top Stories Newsletter<\/h2>\n<p class=\"newsletter-widget__text\">Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.<\/p>\n<div aria-hidden=\"false\" class=\"newsletter-widget__bottom js-form-main\">  <small> By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. 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