CP Stock Jumps 8% on Board Approval of KCS Purchase

It’s official. CP (TSX:CP) stock received the go ahead to finally merge with KCS, creating the first single-line North American railway.

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Canadian Pacific Railway (TSX:CP) shares jumped as much as 8% on March 15, after news came from the United States Surface Transportation Board (STB) that the acquisition of Kansas City Southern (KCS) was approved.

What happened?

The news that CP stock finally receive STB approval has been long awaited. It ends the multi-year drama between CP stock and fellow Canadian railway Canadian National Railway, which also sought to purchase KCS.

However, the STB had come out leaning towards CP stock years back, stating that CNR stock already had multiple lines that covered the same area as KCS. So, even though they came in at a far higher number than CP stock for the purchase, CP stock looked like it would be the winner.

And today, that was finally put down in writing. The merger creates the first single rail line to run from Canada through the United States and down to Mexico as Canadian Pacific Kansas City.

The details

Of course, it’s all in the details, but CP stock has been waiting some time to start up this new venture. Ever since Dec. 14, 2021, to be exact. But as of Apr. 14, 2023, CP stock aims to have full control of KCS. It’s at this time they would combine to make the new CPKC company.

All together, the STB stated that ultimately, the goal would be the “enhance safety and benefit the environment” from such a combination. This was seen to be the case for the CP merger over the CNR option.

This move would thereby shift 64,000 truckloads from roads across North America to rail, according to a statement. This certainly helped since there are little to no track redundancies or overlapping routes.

Even with a hefty price tag of US$31 billion, the STB and all those involved believe the move is worth it.

“The Transaction will make possible improved single-line service for many shippers and will result in merger synergies that are likely to allow CPKC to be a vigorous competitor to other Class I’s by providing improved service at lower cost.”

Surface Transportation Board

Now what?

The market reacted positively, even amid shares and markets falling pretty much across the board. The clear long-term benefits shone through. Now, investors will merely have to lie in wait about what’s next for the company.

Of course, if the April 14th deadlines is to arrive, that will also likely be the introduction of a new company and, therefore, new stock. So, investors should keep their eyes out for news as to when and how that should arrive.

For now, investors can still be happy picking up the stock for immense long-term value. It currently trades at 28.55 times earnings, which is out of value territory, unless you’re thinking long term. It holds a 0.75% dividend yield, and shares remain where they were a year ago at this point.

However, shares exploded over the last few years, as news of a deal came closer. Shares of CP stock are up about 130% in the last five years alone, as of writing. And that’s not even at all-time highs. So, if you’re looking for returns to climb as steadily as a rail, definitely consider CP stock today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Canadian Pacific Railway. The Motley Fool recommends Canadian National Railway and Canadian Pacific Railway. The Motley Fool has a disclosure policy.

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