Railway giant Canadian Pacific (CP) closed a US $31 billion deal including the assumption of $3.8 billion of debt for United States railroad Kansas City Southern (KCS) on Tuesday, a sale that was originally agreed upon in September.

The landmark deal creates Canadian Pacific Kansas City (CPKC), an approximately 32,000 kilometer railroad that connects Canada, the United States and Mexico and will generate an estimated $8.7 billion annually.

CPKC will offer a direct link between Vancouver, Montreal, New York, Texas and large parts of Mexico, currently operated under KCS’ wholly-owned subsidiary Kansas City Southern de México, which carries freight from the Pacific port of Lázaro Cárdenas, Michoacán; ports in Tampico and Altamira in Tamaulipas; the port of Veracruz; and the Valley of México and the El Bajío industrial region to the U.S. via Texas. 

The combination will capitalize on the North America trade agreement (USMCA), particularly in the automotive and agriculture industries, which are together worth almost $190 billion, according to the Economy Ministry.  

However, the deal isn’t quite finalized yet: KCS shares have been placed in a voting trust while U.S. regulators review it. The companies expect approval in the fourth quarter of 2022, and will operate independently until then. 

The acquisition was given the green light by Mexican regulators in November. 

Completion will bring an end to a bidding war between CP and its domestic rival Canadian National (CN), which was previously in line to take over KCS. 

The president of CP, Keith Creel, said the deal would benefit North American economies: “Today is an historic day for our two iconic companies … 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,” he said.

President of KCS, Patrick Ottensmeyer, said the agreement will be beneficial for clients, shareholders and workers: “The CP-KCS combination will not only benefit customers, partners, labor and shareholders through new single line transportation services, attractive synergies and complementary routes, but will also benefit KCS and our employees by enabling us to be part of a growing corporate enterprise on the North American continent,” he said. 

CP began operating in 1881 and has approximately 20,100 kilometers of track in the United States and Canada.

KCS is the smallest of the major freight railroads in the U.S, with 10,800 kilometers of track in the U.S. and Mexico.

With reports from Milenio and Global News