CALGARY — After months of back-and-forth negotiations between three of North America’s largest rail companies, a winner finally appears to have emerged in the battle to acquire Kansas City Southern (KCS).

Canadian Pacific Railway Ltd. (CP) on Sept. 15 announced it has entered into an agreement to acquire KCS in a stock and cash transaction representing an enterprise value of approximately $31 billion, which includes the assumption of $3.8 billion of outstanding KCS debt.

“Our path to this historic agreement only reinforces our conviction in this once-in-a-lifetime partnership,” said Keith Creel, president and chief executive officer of CP. “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 US-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.”

Patrick J. Ottensmeyer, president and CEO of KCS, said the merged railroad will be able to compete “by providing the best value for the transportation dollar.”

“The CP-KCS combination will not only benefit customers, labor partners, and shareholders through new, single-line transportation services, attractive synergies and complementary routes, it will also benefit KCS and our employees by enabling us to become part of a growing and truly North American continental enterprise,” Mr. Ottsensmeyer said.

In order to move forward with its deal with CP, KCS first had to terminate its proposed merger with Canadian National (CN), a decision with significant financial implications. As part of the termination agreement, KCS must pay CN $1.4 billion, which includes a termination fee of $700 million and a $700 million refund of the fee CN paid for KCS to terminate its deal in May with CP.

KCS and CN appeared on the verge of completing their own deal until the Surface Transportation Board (STB) on Aug. 31 issued a unanimous decision rejecting the use of a voting trust agreement in connection with the proposed transaction between CN and KCS.

CN still had a few days to come up with an improved offer for KCS, but ultimately decided to agree to an early termination of the match period provided for in the CN merger agreement. While CN said it continues to believe that a CN-KCS combination would have enhanced competition and delivered many other compelling benefits for stakeholders, there have been significant changes to the US regulatory landscape since CN launched its initial proposal, which have made completing any Class I merger much less certain, including an Executive Order focused on competition issued by President Biden in July.

“While we are disappointed that we will not be able to deliver the many compelling benefits of this transaction to our stakeholders, the decision to bid for KCS was a bold and strategic move that still resulted in positive outcomes for CN,” said JJ Ruest, president and chief executive officer of CN. “We believe that the decision not to pursue our proposed merger with KCS any further is the right decision for CN as responsible fiduciaries of our shareholders’ interests. CN will continue to pursue profitable growth and opportunities for excellence as a leading Class I railroad, and we look forward to outlining more details on our strategic, operational and financial priorities in the near future.”