CANADIAN PACIFIC RAILWAY TO BUY MAJOR U.S. FREIGHT CARRIER

Calgary-based Canadian Pacific Railway (CP) will buy the Kansas City Southern railroad for $28.9 billion in cash and stock, CP announced on 21 March.
The deal marks the first major change in North America’s rail ownership in more than 20 years.
The purchase, Canadian Pacific’s largest in its history, will give it control of the smallest of seven rail systems that handle most U.S. railroad freight, according to the Financial Times.
The combination “will create the first US-Mexico-Canada railroad” and conjoin the “two best-performing Class 1 railroads for the past three years on a revenue growth basis,” Keith Creel, CP’s CEO, said in announcing the deal.
Kansas City Southern is the only Class 1 U.S. railroad focused on carrying freight on north-south routes, the FT reported. It also operates widely in Mexico and is a half-owner of the Panama Canal Railway Company.
Canadian Pacific has agreed to pay $275 per share for Kansas City Southern, $90 of which will be cash and the balance in Canadian Pacific stock. To fund the purchase, CP will issue 44.5 million new shares and borrow $8.6 billion.
Under the plan, Kansas City Southern’s shareholders would own about 25 percent of CP’s outstanding shares, CNBC calculated.
Kansas City Southern’s share price closed at $224 on Friday, 19 March, and $249 Monday this week.
The merger must now be approved by regulators.
Past mergers have left only two major rail systems in Canada, two in the eastern U.S., and two in the western U.S.
TRENDPOST: Once again, the trend is clear. More mergers and acquisitions equal more consolidation, and more monopolies equal more control by the few of the masses. And what is being ignored by the media is that the less competition, the less need for innovation, since the monopolies are not being threatened from losing market share by competitors with superior products and services.

Comment (1)

A monopoly refers to when a company and its product offerings dominate a sector or industry. Monopolies can be considered an extreme result of free-market capitalism in that absent any restriction or restraints, a single company or group becomes large enough to own all or nearly all of the market (goods, supplies, commodities, infrastructure, and assets) for a particular type of product or service. The term monopoly is often used to describe an entity that has total or near-total control of a market.
Understanding Monopolies
Monopolies typically have an unfair advantage over their competition since they are either the only provider of a product or control most of the market share or customers for their product. Although monopolies might differ from industry-to-industry, they tend to share similar characteristics that include:
High barriers of entry: Competitors are not able to enter the market, and the monopoly can easily prevent competition from developing their foothold in an industry by acquiring the competition.
Single seller: There is only one seller in the market, meaning the company becomes the same as the industry it serves.
Price maker: The company that operates the monopoly decides the price of the product that it will sell without any competition keeping their prices in check. As a result, monopolies can raise prices at will.
Economies of scale: A monopoly often can produce at a lower cost than smaller companies. Monopolies can buy huge quantities of inventory, for example, usually a volume discount. As a result, a monopoly can lower its prices so much that smaller competitors can’t survive. Essentially, monopolies can engage in price wars due to their scale of their manufacturing and distribution networks such as warehousing and shipping, that can be done at lower costs than any of the competitors in the industry.
https://www.investopedia.com/terms/m/monopoly.asp

March 25, 2021 lvblasiotti

CANADIAN PACIFIC RAILWAY TO BUY MAJOR U.S. FREIGHT CARRIER

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