(Reuters) - Canadian Pacific Railway Ltd on Sunday said it has agreed to buy Kansas City Southern for $25 billion in a cash-and-shares deal to create the first rail network connecting the United States, Mexico, and Canada, betting on a pick-up in North American trade. The deal would create the first U.S.-Mexico-Canada railroad, offering a single integrated rail system connecting ports on the U.S. Gulf, Atlantic and Pacific coasts with overseas markets. Shareholders of Kansas City Southern will receive 0.489 of a Canadian Pacific share and $90 in cash for each KCS common share held, valuing Kansas City Southern at $275 per share, a 23% premium to Friday’s closing price, the companies said in a joint statement. Including debt, the deal is valued at $29 billion. The deal is contingent on the U.S. Surface Transportation Board (STB) blessing the transaction and Canadian railroad operators’ previous attempts to buy U.S. rail companies have met limited success. “I’m not going to speculate about the STB rejecting,” Canadian Pacific Chief Executive Keith Creel told Reuters in an interview. But he said based on the facts of the case, including that the two railroads currently have no overlap in their network, he expects regulators to approve it. The STB review is expected to be complete by mid-2022. It is the top M&A deal announced in 2021 and the biggest merger involving two rail companies, though it ranks behind Berkshire Hathaway’s purchase of BNSF in 2010 for $26.4 billion. For a Factbox on the deal highlights see: BREAK FEE Creel said in a statement that the new competition the deal would inject into the North American transportation market “cannot happen soon enough,” as the new USMCA Trade Agreement makes the efficient integration of the continent’s supply chains more important than ever before. The new and modernized U.S.-Mexico-Canada trade pact took effect in July last year, replacing the earlier deal that lasted 26 years, and is expected to foster manufacturing and agriculture trade activities among the three countries.“It gives us certainty given that the USMCA trade deal was resolved,” Creel added. Creel will continue to serve as CEO of the combined company, which will be headquartered in Calgary, the statement said. The KCS board has approved the bid. Upon the shareholder approval, CP will buy KCS shares and place them in an independent voting trust which would insulate KCS from control by CP until the STB authorizes the acquisition. If the STB were to reject the deal, CP would have to sell the shares of Kansas City, and one source close to the agreement suggested they could be divested to private equity firms or be relisted in the stock market in that event. There is a $1 billion reverse breakup fee that CP would have to pay KCS if it cannot close into the trust, the source added. The companies also highlighted the environmental benefits of the deal, saying the new single-line routes that would be created by the combination are expected to shift trucks off crowded U.S. highways, and cut emissions. Rail is four times more fuel efficient than trucking, and one train can keep more than 300 trucks off public roads and produce 75% less greenhouse gas emissions, the companies said in the statement. Shareholders in Kansas City Southern are expected to own 25% of Canadian Pacific’s outstanding common shares after the deal, the companies said. Canadian Pacific said it will issue 44.5 million new shares and raise about $8.6 billion in debt to fund the transaction. The Financial Times first reported on the deal. FAILED BIDS Calgary-based Canadian Pacific is Canada’s No. 2 railroad operator, behind Canadian National Railway Co Ltd, with a market value of $50.6 billion. It owns and operates a transcontinental freight railway in Canada and the United States. Grain haulage is the company’s biggest revenue driver, accounting for about 58% of bulk revenue and about 24% of total freight revenue in 2020. Kansas City Southern has domestic and international rail operations in North America, focused on the north-south freight corridor connecting commercial and industrial markets in the central United States with industrial cities in Mexico. Canadian Pacific’s latest attempt to expand its U.S. business comes after it dropped a hostile $28.4 billion bid for Norfolk Southern Corp in April 2016. Canadian Pacific’s merger talks with CSX Corp, which owns a large network across the eastern United States, failed in 2014. A bid by Canadian National Railway Co, the country’s biggest railroad, to buy Warren Buffett-owned Burlington Northern Santa Fe was blocked by U.S. antitrust authorities in 1999-2000. BMO Capital Markets and Goldman Sachs & Co. LLC are serving as financial advisors to Canadian Pacific, while BofA Securities and Morgan Stanley & Co. LLC are serving as financial advisors to Kansas City Southern.