CSX and CPKC (Canadian Pacific Kansas City) railroads announced a deal that will allow them to beef up a little-used connection between their two networks in the southeastern United States to handle a significant amount of freight.
As part of the deal, CPKC will acquire about 50 miles of track between Meridian, Mississippi, and Myrtlewood, Alabama, if regulators approve. CSX will take over the line it currently leases to the Meridian & Bigbee Railroad that runs east to Montgomery, Alabama.
The deal involves a section of track linking the two massive railroads that is currently used only for local traffic. This could one day turn it into a major pipeline for all kinds of cargo.
CPKC CEO Keith Creel said the two larger railroads plan to invest in upgrades to the rail line, so it can handle more traffic and provide a shorter path between manufacturing plants his railroad serves in Mexico and the Southeast. Currently, trains crossing this section of track operated by a subsidiary of Genesee &Wyoming run only at 10-25 mph.
CSX CEO Joe Hinrichs said this deal "provides shippers with a compelling transportation option with access to markets in Texas and Mexico as well as into the heart of the thriving and dynamic U.S. Southeast."
This new connection between CPKC and CSX will provide a new competitive option with the connection CPKC has with Norfolk Southern at Meridian, Mississippi.
Terms of the deal weren't disclosed but the railroads said Genesee & Wyoming will receive certain Canadian properties owned by CPKC as compensation that will allow it to expand service in Alberta at one of its other small railroads. And the Meridian & Bigbee Railroad that had been operating the line in Alabama and Mississippi will be allowed to continue providing service to some of its local customers along the route.
In addition to announcing this deal, CPKC officials told investors that they expect the newly combined railroad's earnings per share to grow this year at a mid-single digit rate over last year's $3.77.
The railroad expects revenue to grow by high single-digit rates and earnings per share at a double-digit rate between next year and 2028 as the company continues to integrate Canadian Pacific and Kansas City Southern railroads after this spring's merger.
CPKC expects to invest between $2.6 billion to $2.8 billion a year in its network and equipment.
