Canadian Pacific-Kansas City Southern Merger: All You Need To Know About The $31B Deal

A federal regulator has approved a merger between two prominent railroads to provide a single-line service spanning Canada, the U.S. and Mexico, despite opposition from a coalition of suburban Chicago towns over safety concerns.

The Surface Transportation Board (STB), an independent body overseeing the freight rail industry, gave green light to the Canadian Pacific – the sixth-largest freight railroad in the U.S. by revenue, to buy Kansas City Southern in a $31 billion deal. It is the first merger between the country's two major railroads in over 25 years, CNBC reported.

The deal will aim to shift about 64,000 truckloads annually from roads to rail to potentially enhance safety and reduce carbon emissions. It is also expected to add more than 800 unionized operational jobs in the U.S.

Approving the merger, STB chair Martin Oberman said it will "benefit the American economy, and will be an improvement for all citizens in terms of safety and the environment," reported POLITICO.

Canadian Pacific said it will take control of Kansas City Southern by April 14 and set up a new carrier named Canadian Pacific Kansas City.

"As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network and drive economic growth," Canadian Pacific CEO Keith Creel said in a statement.

The single-line service will foster the movement of grains from the Midwest to the Gulf Coast and Mexico, flow of intermodal goods between Dallas and Chicago, and the trade of automotive parts and vehicles among other goods between Mexico and the U.S., the board explained.

The decision comes at a time when the freight rail industry is facing scrutiny over a lack of stringent safety requirements following the derailment of a Norfolk Southern freight train in East Palestine, Ohio, on Feb. 3.

"The Board is well cognizant of the recent elevated level of public concern stemming from the derailment in East Palestine, Ohio, and as always, the Board has carefully analyzed the proposed merger from a safety perspective," the STB said.

The five-member board imposed certain conditions on the merger, including a seven-year period of oversight with extensive data reporting to monitor issues related to delays and service disruptions. It also approved measures to address "potential environmental impacts of the transaction, such as increased noise."

Opposition to the deal

A coalition of several suburban Chicago towns opposed the merger, noting that the deal would lead to more road traffic and disrupt Chicago's Metra rail network.

"The merger will have dramatic impacts on freight traffic in Illinois that will undoubtedly impact the safety, congestion, and livelihood of Illinois communities as well as disrupt Metra's commuter rail operations that Illinoisans rely on to access jobs, education, and work," a group of members from Congress in Ilinois said in a statement Wednesday.

Metra also opposed the merger, expressing concerns about how it will impact its ongoing operations. The suburban coalition has vowed to fight against the board's decision.