The KSU stock has surged by 0.38% in the market at the current price of $224.16. The major movement that is happening is in the pre-market where it jumped by more than 15%.
This jump in prices comes following the news of the merger between the train-operating company Kansas City Southern (KSY) and the railway company known as Canadian Pacific Railway.
The first ever railway network between Canada, US and Mexico.
This merger is expected to create the first ever freight railway network between Canada, US and Mexico. Both of these companies are two of the largest North American railroad and train operating companies. The Merger took place on Sunday where the Canadian Pacific has agreed to purchase Kansas City Southern (KSU) for approximately $29 billion.
The Canadian railway has accepted to take into consideration the $3.8 billion debt of KSU as part of the $29 billion deal package. This will value the KSU shares at $275 apiece. However investors need to keep in mind that the deal is subject to approval by the US Surface Transportation Board (STB).
JP Morgan upgrades rating of KSU to “Overweight”
From KSU stock point of view, another is exciting news is that JP Morgan analysts have given an upgrade rating from “Neutral” to “Overweight”. This upgraded rating suggests that the scope of this deal contains vast future prospects for good business and fundamental operations.
What makes this deal a game changer
This holds true especially due to the fact that the revised NAFTA trade deal between USA, Mexico and Canada is taking place. The merger deal holds more significance in relation to this USMCA trade deal. This is because the trade integration between the three countries will require for efficient supply chain network between the three countries and the merged railway network could be the potential answer for it.
The merged company would then be employing a workforce of 20,000 people operating on a 20,000 miles of railway network. The estimated annual sale generation will be estimated to be around $8.7 billion annually. Canadian Pacific’s debt will jump to about $20 billion.Furthermore, as part of this transaction Canadian Pacific has decided to issue 44.5 million new shares.
After the completion of the merger, the combined company will come to be known as Canadian Pacific Kansas City (CPKC). CPKC will then have a joint network in Missouri, Kansas city. This interchange point would allow speeding up of the shipment and cargo delivery service with fewer roadblocks.
Future prospects of this deal
The deal may create some roadblocks of its own as the companies may fight antitrust regulations while shareholders and investors may face lengthy reviews (due to merger) for their share payouts. However, both companies are focusing on helping the shareholders on this by getting Canadian Pacific to create an independent trust. This trust would acquire shares of KSU ahead of regulatory actions and then the combined company would acquire that trust.
This plan would shorten the review process for the shareholders however this plan and this whole deal is hedged on the hopes that Surface Transportation Board will sign off on the deal.
