CP Rail-KCS Deal Gets Mexican Regulatory Approval

Canadian Pacific Railway (CP) and Kansas City Southern (KSU) announced Friday that Mexican regulators have given their OK to CP Rail’s deal to buy Kansas City Southern.

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CP agreed to acquire KCS in a stock and cash transaction for approximately $31 billion, including the assumption of $3.8 billion of debt. (See Insiders’ Hot Stocks on TipRanks)

Transaction to Close on December 14

CP Rail and KCS have received the required regulatory approvals for pre-transaction screening from the Mexican Federal Economic Competition Commission (COFECE) and the Mexican Federal Telecommunications Institute (IFT) for the previously announced proposed merger of KCS and CP.

Shareholders of CP and KCS are scheduled to vote on the proposed transaction on December 8 and 10, respectively. The transaction is expected to close on December 14 if it is approved.

The U.S. regulator has already approved the use of a voting trust for the transaction.

Canadian Pacific expects the U.S. Surface Transportation Board (STB) to complete the review of the deal in the fourth quarter of 2022.

Management Commentary

CP President and CEO Keith Creel said, “This important milestone marks the next step on our path to creating the first single-line rail network linking the U.S., Mexico and Canada. This historic combination will add capacity to the U.S. rail network, create new competitive transportation options, support North American economic growth, and deliver important benefits to customers, employees and the environment.”

Wall Street’s Take

Last month, Desjardins analyst Benoit Poirier maintained a Buy rating on CP but lowered its price target to C$103 (from C$104). This implies 11.3% upside potential.

Overall, consensus on the Street is that CP is a Strong Buy based on 10 Buys and two Holds. The average Canadian Pacific price target of C$104.35 implies 12.9% upside potential to current levels.

TipRanks’ Smart Score

CP scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock returns are very likely to beat the overall market.