- Assume the CP Rail Kansas City Southern transaction which was announced on March 21, 2021, details of the transaction can be found on the CP Rail website, was completed on March 31, 2020.
- Quantify and discuss the impact of the transaction on the annual and quarterly Earnings per share
- Quantify and discuss the impact of the transaction on the annual and quarterly Diluted Earnings per share
Canadian Pacific Railway Limited (TSX: CP, NYSE: CP) (CP") and Kansas City Southern (NYSE: KSU) ("KCS") today announced they have entered into a merger agreement, under which CP has agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately USD$29 billion', which includes the assumption of $3.8 billion of outstanding KCS debt. The transaction, which has the unanimous support of both boards of directors, values KCS at $275 per share, representing a 23% premium?, based on the CP and KCS closing prices on March 19, 2021 (and $270 per share, representing a 26% premium), based on the respective CP and KCS 30-day volume weighted average prices ("VWAP")). Following the closing into a voting trust, common shareholders of KCS will receive 0.489 of a CP share and $90 in cash for each KCS common share held. [1] Except where noted, all figures are in U.S. dollars. [2] Based on KCS and CP closing share prices of $224.16 and CAD$474.27 (at 1.2506 FX rate), respectively, as of March 19, 2021. [3] Based on KCS and CP 30-day volume weighted average prices ("WWAPS") of $213.87 and US$368.22, respectively, as of March 19, 2021. Following the closing into a voting trust, common shareholders of KCS will receive 0.489 of a CP share and $90 in cash for each KCS common share held. Preferred shareholders will receive $37.50 in cash for each ww.cpr.ca/en/media/canadian-pacific-and-kansas-city-southern-agree-to-combine-to-create-the-firs Pacific and Kansas City Southern Agree to combine to Create the First U.S.-Mexico-Canada Rail Netv KCS preferred share held. The fixed exchange ratio implies a price for KCS of $275 per share, representing a 23% premium, based on the CP and KCS closing prices on March 19, 2021 (and $270 per share, representing a 26% premium", based on the respective CP and KCS 30-day volume weighted average prices ("VWAP")). Immediately following the closing into trust, KCS common shareholders are expected to own 25 percent of CP's outstanding common shares, providing the ability to participate in the upside of both companies' growth opportunities. Following final STB approval, KCS shareholders will additionally participate in the realization of synergies resulting from the combination. By accelerating the combined growth strategies of the two fastest- growing Class 1s with new efficiencies for customers and improved on-time performance under their respective PSR programs, the combined company under CP's control is expected to create annualized synergies of approximately $780 million over three years. The combination is expected to be accretive to CP's adjusted diluted EPS6 in the first full year following CP's acquisition of control of KCS, and is expected to generate double-digit accretion upon the full realization of synergies thereafter. To fund the stock consideration of the merger, CP will issue 44.5 million new shares. The cash portion will be funded through a combination of cash-on-hand and raising approximately $8.6 billion in debt, for which financing has been committed. As part of the merger, CP will assume approximately $3.8 billion of KCS' outstanding debt. Following the closing into trust, CP expects that its outstanding debt will be approximately $20.2 billion. Pro forma for the transaction, CP estimates its leverage ratio against 2021E street consensus EBITDA to be approximately 4.0x with the assumption of KCS debt and issuance of new acquisition-related debt. In order to manage this leverage effectively, CP will be temporarily suspending its normal course issuer bid program, and expects to produce approximately $7 billion of levered free cash flow (after interest and taxes) over the next three years. CP estimates its long- term leverage target of approximately 2.5x to be achieved within 36 months after closing into trust. The combined company will remain committed to maintaining strong investment grade credit ratings while continuing to return capital for the benefit of shareholders. [4] Based on KCS and CP closing share prices of $224.16 and CAD$474.27 (at 1.2506 FX rate), respectively, as of March 19, 2021. [5] Based on KCS and CP 30-day volume weighted average prices ("VWAPs") of $213.87 and US$368.22, respectively, as of March 19, 2021. [6] Accretion based on adjusted diluted EPS excluding one-time advisory, financing, and integration costs as well as incremental transaction-related amortization. Canadian Pacific Railway Limited (TSX: CP, NYSE: CP) (CP") and Kansas City Southern (NYSE: KSU) ("KCS") today announced they have entered into a merger agreement, under which CP has agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately USD$29 billion', which includes the assumption of $3.8 billion of outstanding KCS debt. The transaction, which has the unanimous support of both boards of directors, values KCS at $275 per share, representing a 23% premium?, based on the CP and KCS closing prices on March 19, 2021 (and $270 per share, representing a 26% premium), based on the respective CP and KCS 30-day volume weighted average prices ("VWAP")). Following the closing into a voting trust, common shareholders of KCS will receive 0.489 of a CP share and $90 in cash for each KCS common share held. [1] Except where noted, all figures are in U.S. dollars. [2] Based on KCS and CP closing share prices of $224.16 and CAD$474.27 (at 1.2506 FX rate), respectively, as of March 19, 2021. [3] Based on KCS and CP 30-day volume weighted average prices ("WWAPS") of $213.87 and US$368.22, respectively, as of March 19, 2021. Following the closing into a voting trust, common shareholders of KCS will receive 0.489 of a CP share and $90 in cash for each KCS common share held. Preferred shareholders will receive $37.50 in cash for each ww.cpr.ca/en/media/canadian-pacific-and-kansas-city-southern-agree-to-combine-to-create-the-firs Pacific and Kansas City Southern Agree to combine to Create the First U.S.-Mexico-Canada Rail Netv KCS preferred share held. The fixed exchange ratio implies a price for KCS of $275 per share, representing a 23% premium, based on the CP and KCS closing prices on March 19, 2021 (and $270 per share, representing a 26% premium", based on the respective CP and KCS 30-day volume weighted average prices ("VWAP")). Immediately following the closing into trust, KCS common shareholders are expected to own 25 percent of CP's outstanding common shares, providing the ability to participate in the upside of both companies' growth opportunities. Following final STB approval, KCS shareholders will additionally participate in the realization of synergies resulting from the combination. By accelerating the combined growth strategies of the two fastest- growing Class 1s with new efficiencies for customers and improved on-time performance under their respective PSR programs, the combined company under CP's control is expected to create annualized synergies of approximately $780 million over three years. The combination is expected to be accretive to CP's adjusted diluted EPS6 in the first full year following CP's acquisition of control of KCS, and is expected to generate double-digit accretion upon the full realization of synergies thereafter. To fund the stock consideration of the merger, CP will issue 44.5 million new shares. The cash portion will be funded through a combination of cash-on-hand and raising approximately $8.6 billion in debt, for which financing has been committed. As part of the merger, CP will assume approximately $3.8 billion of KCS' outstanding debt. Following the closing into trust, CP expects that its outstanding debt will be approximately $20.2 billion. Pro forma for the transaction, CP estimates its leverage ratio against 2021E street consensus EBITDA to be approximately 4.0x with the assumption of KCS debt and issuance of new acquisition-related debt. In order to manage this leverage effectively, CP will be temporarily suspending its normal course issuer bid program, and expects to produce approximately $7 billion of levered free cash flow (after interest and taxes) over the next three years. CP estimates its long- term leverage target of approximately 2.5x to be achieved within 36 months after closing into trust. The combined company will remain committed to maintaining strong investment grade credit ratings while continuing to return capital for the benefit of shareholders. [4] Based on KCS and CP closing share prices of $224.16 and CAD$474.27 (at 1.2506 FX rate), respectively, as of March 19, 2021. [5] Based on KCS and CP 30-day volume weighted average prices ("VWAPs") of $213.87 and US$368.22, respectively, as of March 19, 2021. [6] Accretion based on adjusted diluted EPS excluding one-time advisory, financing, and integration costs as well as incremental transaction-related amortization
