• CANADIAN NATIONAL ENTERS BIDDING WAR WITH CANADIAN PACIFIC FOR KANSAS CITY SOUTHERN

  • For topics on Class I and II passenger and freight operations more general in nature and not specifically related to a specific railroad with its own forum.
For topics on Class I and II passenger and freight operations more general in nature and not specifically related to a specific railroad with its own forum.

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  by eolesen
 
Ridgefielder wrote:
Shortline614 wrote: Wed Apr 21, 2021 11:55 am A CP-UP merger would be the natural response to CN-KCS. The two systems fit well with overlap confined to the ex-MILW and C&NW lines in the Upper Midwest. The competitive issues could be solved by selling off the ex-MILW which CP has already hinted at if CN-KCS goes though.ng into the voting trust.
I think Ottawa might very well have some strong thoughts about CP getting absorbed by a US giant. Which is what a CP-UP merger would be, however way you slice it, given the size disparity of the two roads.
Ottawa didn't seem to have a problem going to only one large airline, and had no problem granting them anti-trust immunity with its much larger US partner.... and that was before USMCA.

Perhaps they won't be as worried as you think?

Sent from my SM-G981U using Tapatalk

  by justalurker66
 
I see CP-UP (actually CP+unnamed railroad not KCS) as a warning by CP to the STB. CP is trying to convince the STB that the only merger of KCS that would serve the common good would be a merger of KCS with CP. They extend that to stating the only ownership change for KCS that would serve the common good would be to be purchased by CP. Obviously CP has its own bias, but the threat is that if CN gets KCS then CP will need to merge with "someone" to survive.

As far as Canada's objections, they do not want CP or CN to be owned or controlled by a foreign company.
  by John_Perkowski
 
I’ll update as I find sources

Canadian National announces competing bid for Kansas City Southern, By Bill Stephens. PLEASE NOTE: (The Trains.com website is currently offline. Watch the Trains Facebook page for news until Trains.com is restored.)

Kansas City Star on the CN offer and the opening of a war of words

From the Associated Press, Railroad Attacks Rival Bid For Kansas City Southern
  by JayBee
 
justalurker66 wrote: Thu Apr 22, 2021 2:39 am I see CP-UP (actually CP+unnamed railroad not KCS) as a warning by CP to the STB. CP is trying to convince the STB that the only merger of KCS that would serve the common good would be a merger of KCS with CP. They extend that to stating the only ownership change for KCS that would serve the common good would be to be purchased by CP. Obviously CP has its own bias, but the threat is that if CN gets KCS then CP will need to merge with "someone" to survive.
As far as Canada's objections, they do not want CP or CN to be owned or controlled by a foreign company.
This matches exactly my thoughts on the matter. Certainly CP wants KCS routes, but even more CP needs KCS to resist the slow strangulation of CP by CN in Canada. The Canadian Government didn't create their Interswitching rules to enable CN to use its much greater size against CP. But that is what is happening. Obviously CN won't do this blatantly as the Canadian Government hopefully wouldn't allow that. One day the Canadian Government will wake up and find that CP has become so weak it can no longer compete against CN in Canada.
  by Shortline614
 
JayBee wrote: Thu Apr 22, 2021 11:38 am This matches exactly my thoughts on the matter. Certainly CP wants KCS routes, but even more CP needs KCS to resist the slow strangulation of CP by CN in Canada. The Canadian Government didn't create their Interswitching rules to enable CN to use its much greater size against CP. But that is what is happening. Obviously CN won't do this blatantly as the Canadian Government hopefully wouldn't allow that. One day the Canadian Government will wake up and find that CP has become so weak it can no longer compete against CN in Canada.
What happens at that point? CP would become what KCS is now. A glorified regional that is too small to survive but too big to ignore. At that point Canada has 3 options: anti-Trust action against CN; accept ownership of CP by an American railroad; or nationalization of CP (very ironic).
  by JayBee
 
Shortline614 wrote: Thu Apr 22, 2021 11:57 am
JayBee wrote: Thu Apr 22, 2021 11:38 am This matches exactly my thoughts on the matter. Certainly CP wants KCS routes, but even more CP needs KCS to resist the slow strangulation of CP by CN in Canada. The Canadian Government didn't create their Interswitching rules to enable CN to use its much greater size against CP. But that is what is happening. Obviously CN won't do this blatantly as the Canadian Government hopefully wouldn't allow that. One day the Canadian Government will wake up and find that CP has become so weak it can no longer compete against CN in Canada.
What happens at that point? CP would become what KCS is now. A glorified regional that is too small to survive but too big to ignore. At that point Canada has 3 options: anti-Trust action against CN; accept ownership of CP by an American railroad; or nationalization of CP (very ironic).
Yes, exactly and it wouldn't be just CP's lines in Canada that would suffer. The railroads under the Soo Line umbrella would be affected.
Last edited by JayBee on Thu Apr 22, 2021 2:34 pm, edited 1 time in total.
  by John_Perkowski
 
WRT a CN-UP merger if CP-KCS goes through ...

The combined CN-UP still won’t have direct access to Mexico.
  by JayBee
 
John_Perkowski wrote: Thu Apr 22, 2021 2:34 pm WRT a CN-UP merger if CP-KCS goes through ...

The combined CN-UP still won’t have direct access to Mexico.
The UP has direct access to the Mexican border at many points, from Brownsville, TX on the Gulf to Calexico, CA. Plus it owns a 25% interest in Ferromex, the other big Mexican railroad. Both KCS and BNSF require trackage rights over UP to reach the Mexican border. Finally if that isn't enough the UP gets 62% of all the traffic coming off KCSdeM currently, leaving KCS and BNSF to split the rest. CPKC or BNSF are unlikely to make any significant inroads into UP's market share, UP just has the most direct routes to the major destinations in the US. Last but not least in 24 years, with or without CP, KCS will lose KCSdeM to either UP or BNSF.
  by west point
 
IMO , The CN offer is just a tactic to delay or "derail" the buy out by CP. CN can take the time now to lock up long term haulage contracts from shippers. CN can quote a tariff about 5% below a CPs KCS's and get a larger traffic base for many years

wonder if both CP & CN have options for line of credits for the purchase ? It could be CN somehow knows of a CP option that could expire before possible STB final approval ? That way present earnings are not affected.
  by JayBee
 
west point wrote: Thu Apr 22, 2021 4:21 pm IMO , The CN offer is just a tactic to delay or "derail" the buy out by CP. CN can take the time now to lock up long term haulage contracts from shippers. CN can quote a tariff about 5% below a CPs KCS's and get a larger traffic base for many years

wonder if both CP & CN have options for line of credits for the purchase ? It could be CN somehow knows of a CP option that could expire before possible STB final approval ? That way present earnings are not affected.
CN trying to derail CP's acquisition of KCS is certainly possible even likely, a delay of even six months doesn't achieve much. As for CN trying to lock up traffic, how are they going to lock up traffic to points on KCS if they don't eventually get KCS? Customers are not going to commit to deals 1 1/2 years in the future with no assurance that they will be valid. KCS will have no reason to accept a CN lock up deal unless and until they know that the CN agreement passes the STB. As for having the Line of Credit arranged before the offer was made the failure to do so would breach SEC rules in the US and would badly hurt their case before the STB, even if they received the credit before the actual application was made this summer.
  by Gilbert B Norman
 
John_Perkowski wrote: Thu Apr 22, 2021 2:34 pm WRT a CN-UP merger if CP-KCS goes through ...

The combined CN-UP still won’t have direct access to Mexico.
Colonel, Warren has yet to be heard from. If he decides he wants KCS for access to Mexico for the manufacturing around Monterrey and the Port of Lazaro Cardenas, he could outbid either Canadian with his Petty Cash box.

He could also want KCS for a more direct N-S route to New Orleans than he has with his trackage over Uncle Pete's Sunset Route.

But I must lament; a KCS-BNSF combination would be the end for "my MILW" to KC. The line would go to a Short Line and soon thereafter be FRA Class 2, or otherwise no longer a viable through routing.
  by Engineer Spike
 
I'm not all too worried about the CN offer. While skimming the pages of this esteemed site, an ad showed up for a CN date touting their safety and efficiency.............................blah blah.......

Look back to the BNSF merger. When BN made a bid on Santa Fe, UP made a counter offer. Look what happened. I agree with the points about having balanced systems, which could prevent the next round of mergers. CN already has its line to the gulf. I do think that Mexico is the big draw, but how secure is the operating franchise? I remember hearing noises a few years ago that the government of Mexico was making noises about revoking it. Maybe it was a ploy to have some cash pushed their way. We can argue these points all day long. We will just have to see where the chips fall.

My take on the whole deal is that both CP and KCS have their backs against the wall. They are the two smallest class one carriers. CP has made some dumb moves by selling east coast lines, namely the D&H, which they never really pushed at hard enough. I also feel that they could have made noises during some of the other large mergers, such as Conrail, to fill some gaps in they system. KCS is up against being taken over by equity firms. They are surrounded by the four US class ones and on Canadian.

My speculation is that if CN does manage to out bid, and also win approval by three governmens, then CP will have to look elsewhere. Maybe they can dust off Hunter's bid for Ns. Another possibility is to buy lines from NS, and maybe others. I mentioned NS because of their present slash and burn version of PSR.
  by eolesen
 
Something pointed out on another forum was that CP's offer to KCS is largely stock. CN's offer to KCS is largely cash.

Can't corroborate that, but let's assume it's true.

While the regulatory hurdles might be higher for CN, I have to wonder if KCS shareholders would be more inclined to accept a higher value in cash with tax implications, or a lower value in the form of stock that has the potential to drop in value just as much as it could go up?
  by CN9634
 
Engineer Spike wrote: Thu Apr 22, 2021 11:23 pm I'm not all too worried about the CN offer. While skimming the pages of this esteemed site, an ad showed up for a CN date touting their safety and efficiency.............................blah blah.......

Look back to the BNSF merger. When BN made a bid on Santa Fe, UP made a counter offer. Look what happened. I agree with the points about having balanced systems, which could prevent the next round of mergers. CN already has its line to the gulf. I do think that Mexico is the big draw, but how secure is the operating franchise? I remember hearing noises a few years ago that the government of Mexico was making noises about revoking it. Maybe it was a ploy to have some cash pushed their way. We can argue these points all day long. We will just have to see where the chips fall.

My take on the whole deal is that both CP and KCS have their backs against the wall. They are the two smallest class one carriers. CP has made some dumb moves by selling east coast lines, namely the D&H, which they never really pushed at hard enough. I also feel that they could have made noises during some of the other large mergers, such as Conrail, to fill some gaps in they system. KCS is up against being taken over by equity firms. They are surrounded by the four US class ones and on Canadian.

My speculation is that if CN does manage to out bid, and also win approval by three governmens, then CP will have to look elsewhere. Maybe they can dust off Hunter's bid for Ns. Another possibility is to buy lines from NS, and maybe others. I mentioned NS because of their present slash and burn version of PSR.
To clarify -- there is no regulatory involvement from Canada as no lines are being transacted there. Also, MX is the wild west, so regulatory involvement, if any, is a joke. STB is the hurdle.

Competing with Conrail, eventually CSX then to a lesser degree NS / NYSW via the D&H Line from a Canadian RR was always an uphill battle. The Eastern US Class I networks are far superior in terms of reach and pricing. It's certainly too bad but not a bad move for CP to have divested the D&H south lines really having no value to their core business. The real tactical error was selling East of Montreal to SJ back in '95, which has been partially rectified. Fred Green was really a lame duck CEO for many years that let CN build not just a slightly superior, but extreme well advantaged system over CP. Now they are playing catch up and KCS makes the logical choice to leap forward.

There is no way CN can pass a regulatory hurdle without major concessions with the north-south USA corridor for all the various reasons already mentioned vs the CN/IC corridor. I'm unconsciously biased towards CP admittedly, but I see CN having a harder case to make to the STB. I still won't exclude a situation where the STB tells CN sure, you can have some lines, but KCS will need to divest of certain corridors to CP.

The question I have is, if CN can obtain the sought access to MX, what would satisfy CP? For instance, if CP obtains KCS lines into Baton Rogue, NOLA, and perhaps even parts of TX, would that keep them in the competition? It's possible given the energy play, intermodal into the Gulf and other commodity groups but falls short of achieving their USMCA goal. Even still, CP with just the US side of KCS lines I think keeps them as a strong competitor so I wouldn't exclude that scenario.... they likely could get those lines for a reduced price against the whole, and under a technicality of breaking the original deal, might get a $700M discount off that reduced price (or let's call it a rebate).

Owning and managing rail lines in MX would personally worry me, there is still a ways to go in terms of infrastructure and safety as well as other aspects. Surely KCS has had a good go of it, but I don't see the chasing of 'OR' or implementation of a true PSR (KCS did something similar but not exactly) working well south of the border at the moment. That's not a dig at the Mexicans, its just an opinion I have having worked with several industrial manufacturers in MX before and seeing culturally first hand. It may prove to be a larger management challenge to operate a RR in three countries than two .... just sayin'
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