North America - Canadian Pacific Railway Ltd. (CP) has finally found the right target to realize its vision for railroad consolidation.
 
The company agreed in March to acquire Kansas City Southern (KCS) for $275 a share, or about $29 billion including debt.
 
If completed, the merger would be the largest between two major North American railroads and the first successful one since the 1990s.
 
CP's failed attempts in recent years to acquire first CSX Corporation (CSX) and then Norfolk Southern Corporation (NS) underscore why consummation of the KCS acquisition is far from a fait accompli.
 
But of all the possible railroad combinations, this is both the most strategically logical, and the most likely to receive the blessing of regulators.
 
The combined tracks will form a "T" that stretches from Kansas City Southern's routes deep inside Mexico, up through the U.S. Midwest, and along the Canadian border from the Pacific to the Atlantic.
 
It's a bet that the recently renegotiated U.S.-Mexico-Canada free-trade agreement, and the supply chain snarls of the pandemic, will bolster the appeal of manufacturing products closer to home, which in turn will create fresh revenue opportunities for the only rail network capable of ferrying goods seamlessly between the three countries.
 
The efficiencies offered by the combined railroad could also help lure freight traffic away from trucks, which emit significantly more pollutants as an industry.
 
There's no overlap between the railroads, meaning customers should only gain options from the combination.
 
CP's pursuit of NS drew high-profile push back from shippers including FedEx Corporation and automaker trade groups concerned about higher prices and less service.
 
This go-round, though certain key past objectors have yet to weigh in, more than 300 entities, including Conagra Brands Inc. and Kraft Heinz Co., have written to the Surface Transportation Board (STB) (railroads' primary regulator) to support the deal.
 
Even after the transaction, the combined CP/KCS would be the smallest of the major North American railroads by revenue.
 
Because of KCS's smaller size, regulators granted it an exemption from tougher rules adopted in 2001 that require railroads to prove a merger is in the public interest.
 
But rivals, and some large shipping groups have asked that the exemption be revoked, arguing the sheer scale of the tie-up, and the growth of KCS's operations in the past two decades warrant closer scrutiny.
 
CP/KCS executives have been talking up the customer and environmental benefits of the deal, and they have a decent argument, even if the more rigorous public interest standard is applied.
 
Any other tie-up among the major North American railroads would raise much thornier issues.
 
Further deal making can never be ruled out, but absent a broad rethink of the regulatory landscape, this may just be the last rail mega-merger.
 
Brooke Sutherland.