Canadian Pacific Railway (“CP”) (CP, Financial)
CP is a highly attractive, inflation-protected business led by a best-in-class management team that operates in an oligopolistic industry with significant barriers to entry. Together with Kansas City Southern (“KCS”), CP is starting the next chapter of its unique growth story.
On March 15, 2023, CP received regulatory approval from the Surface Transportation Board for its acquisition of KCS. This transformational merger creates the only single-line railroad connecting Canada, the United States, and Mexico, leading to many new transportation options for shippers and greatly enhancing CP-KCS’ competitiveness.
As the world moves towards de-globalization, we expect CP-KCS will be a key beneficiary of increased North American nearshoring and USMCA investment. The combined company will also foster a more environmentally friendly and safer North American supply chain by shifting approximately 64,000 trucks annually from the road to rail and expanding CP’s industry-leading safety practices. As a result of the many benefits, we believe the KCS acquisition will generate meaningful revenue and cost synergies and drive double-digit earnings growth.
Despite CP’s acquisition of KCS and favorable outlook, CP continues to trade at a discount to its intrinsic value and its closest peer, Canadian National. We believe that the successful integration of KCS will be an important catalyst for share price appreciation in the years to come.
From Bill Ackman (Trades, Portfolio)'s Pershing Square 2022 annual letter.
