• 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.

Moderator: Jeff Smith

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  by justalurker66
 
Note: The increase in stock shares in the offer raises the value of the CN offer from $317.60 to $325.38 (based on today's closing stock prices). Basically CN has increased their offer to match the $325 offered April 19th.

KCS closed at $313.45 so CN's offer remains higher than the current KCS stock price.
CP's stock went past $400 today making the value of their offer $286.06 (based on today's closing stock prices).
CP could match CN's price by offering 0.587 shares of CP stock instead of 0.489 shares of CP stock per KCS share.
  by eolesen
 
Yep, I see no realistic way for CP to raise their bid, but it will be an interesting five days...

As for next steps.... I see way too much overlap between CP and BNSF when you get north of I-80 to see that as a possibility, but will reiterate that the most logical partner for CP seems to be UP or CSX. Maybe both.

We're going to get to three Class-1's eventually, so my guess is the next round will see NS+BNSF & UP+CSX+CP ---OR--- UP+NS+CP, BNSF+CSX
  by Pensyfan19
 
eolesen wrote: Fri May 14, 2021 12:50 am As for next steps.... I see way too much overlap between CP and BNSF when you get north of I-80 to see that as a possibility, but will reiterate that the most logical partner for CP seems to be UP or CSX. Maybe both.

We're going to get to three Class-1's eventually, so my guess is the next round will see NS+BNSF & UP+CSX+CP ---OR--- UP+NS+CP, BNSF+CSX
I can't help but feel that some of these major mergers would be too large to operate, with some sections being neglected in favor of others. Look at how many Class Is made up the few Class Is of today. If certain sections of the current Class Is can be split up into other railroads, then each railroad can focus on improving service in their own region rather than half the continent.
  by Gilbert B Norman
 
Mr. Pennsy, for as long as you have been on this planet, the "Transcontinental Duopoly" outlined by Mr. Olesen has simply been inevitable.

When I first started following industry affairs at about age ten, there were 635 railroad companies in the US, 114 of which were designated as Class I.

More need be said?
  by Shortline614
 
I've always thought that the two remaining transcontinental duopolies would have to sell thousands of miles of branch and secondary lines in order to become more manageable and to pay off merger-related debt. You see this after every big merger where the new company sells off some of their "low density" lines shortly after.

As for the concept of a transcontinental duopoly: I don't really see much wrong with it as long as some form of open access is instituted. Canada has worked just fine with 2 Class Is with open access in some form for going on 100 years. If it works there, I don't see why it couldn't work here. Additionally, a "go-everywhere" railroad could be able to offer services, partially in the midwest and midsouth, and north-south corridors that could take a lot of trucks off of the road. One advantage that trucking has over railroads is that they are national in scope. Until railroads can solve this issue, they will be at a disadvantage.

Anyways, my Dad has a 5$ bet with me that BNSF will go after CP. CP says they will have to look for a merger partner if CN-KCS goes though. I still hold true to my prediction that the DM&E/IC&E will become "reregionaled" as well. Only time will tell.
  by eolesen
 

Pensyfan19 wrote:
I can't help but feel that some of these major mergers would be too large to operate, with some sections being neglected in favor of others.
If logistics companies like UPS, FDX, Amazon, etc. can function successfully on a global scale, surely a railroad can.

Functions like payroll, HR, tax, legal don't suddenly get more complex if you're a company with 1,000 vs 300,000 employees. You might have to scale up somewhat but it's not a linear progression by any means.

Railroads are already decentralized to some degree with regional and divisional structures. Having 10 divisions in 15 states or 20 divisions in 35 states won't be a problem.

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  by CN9634
 
eolesen wrote: Fri May 14, 2021 8:39 am
Pensyfan19 wrote:
I can't help but feel that some of these major mergers would be too large to operate, with some sections being neglected in favor of others.
If logistics companies like UPS, FDX, Amazon, etc. can function successfully on a global scale, surely a railroad can.

Functions like payroll, HR, tax, legal don't suddenly get more complex if you're a company with 1,000 vs 300,000 employees. You might have to scale up somewhat but it's not a linear progression by any means.

Railroads are already decentralized to some degree with regional and divisional structures. Having 10 divisions in 15 states or 20 divisions in 35 states won't be a problem.

Sent from my SM-G981U using Tapatalk
The exact opposite of your statement is reality -- things definitely are more complex with a company going from 1,000 vs 300,000.

A lot of global logistics companies employ agents, traders, contractors and brokers as part of their global network. They always try to save a buck too outsourcing data entry, contract management, and even HR functions to administrative companies in India and other Asian countries. You have a company of 1000 people you can almost entirely manage that on this shore, you go to 300,000 and you are dealing with multiples more complex.... more trade unions, more currencies to manage, legal jurisdictions, different tax laws, accounting, ect....

Personally, I would have no interest in running a RR in three countries, and there is a difference between having large line density (spaghetti) in say the east, or west, vs a huge geography connected by long tentacles. Steamship lines realized it wasn't feasible years ago and consolidated + setup the alliance structure... even then the individual companies focus on their core strength markets. Trying to be all things to all customers can get you into a lot of trouble.
  by west point
 
If CN Suspect one of the 2 N-S lines will have to go to NS otherwise no deal by STB.
What about Mexico? That country's possible intervention is a big unknown.
Then there is Canada. They may wonder about the company maybe going to be a USA firm.
  by justalurker66
 
Gilbert B Norman wrote: Fri May 14, 2021 7:26 amMr. Pennsy, for as long as you have been on this planet, the "Transcontinental Duopoly" outlined by Mr. Olesen has simply been inevitable.
I am not ready to throw in the towel and allow a duopoly. Six class one railroads seems to be about right in my opinion. And I believe the STB had that in mind when they set the modern merger rules 20 years ago - with the potential exception for KCS joining one of the other six. In my opinion, the only way additional mergers would be allowed would be if one or more of the Class I railroads was failing (which probably would put said railroad under the definition of Class I).
Gilbert B Norman wrote: Fri May 14, 2021 7:26 amWhen I first started following industry affairs at about age ten, there were 635 railroad companies in the US, 114 of which were designated as Class I.
In 1956 the threshold for Class I was $3 million - inflation would make that $29.172 million in 2021. The threshold is now $504 million. A lot has changed since you were a child. There would be a lot more Class I railroads if your childhood standards were used.

I firmly believe KC-CP or KC-CN will be the last monster merger allowed by the STB and DOJ.
  by eolesen
 

CN9634 wrote:
The exact opposite of your statement is reality -- things definitely are more complex with a company going from 1,000 vs 300,000.

A lot of global logistics companies employ agents, traders, contractors and brokers as part of their global network. They always try to save a buck too outsourcing data entry, contract management, and even HR functions to administrative companies in India and other Asian countries. You have a company of 1000 people you can almost entirely manage that on this shore, you go to 300,000 and you are dealing with multiples more complex.... more trade unions, more currencies to manage, legal jurisdictions, different tax laws, accounting, ect....
If you say so... but I've experienced the opposite having gone thru five mergers under the RLA's jurisdiction. The permutations level out quickly, especially once you've reached the size of a KCS size company.

Operating in dozens of countries will add complexity far more than the number of employees in any one country will. Any merger of class 1's is going to involve a maximum of two countries plus the franchises in MX.

Outsourcing is never about complexity. It's about costs and headcount reduction.

Sent from my SM-G981U using Tapatalk

  by CN9634
 
We can agree to disagree, but there are many reasons for outsourcing not always headcount. For instance, large manufacturers of paper products will often outsource logistics to a 3PL... why? Because a paper company is only ever going to get really good at making paper and doesn’t want to expand their craft into logistics. And obviously there are cost implications to building a apparatus outside your core business, do some questions are around how to mitigate. That’s not the rule, some manufacturers go all-in on doing it themselves, look at Day & Ross from McCains. I don’t want to assume, but I’ve only ever sat on the non-union side of the table, so perhaps perspectives are different.

Back to the topic on hand— I wouldn’t want to operate a RR in MX, especially if I already operate in the US and Canada. I’ve sent truck, intermodal and boxcars across the border and once they cross that plain of existence they go “missing” for days or weeks. My best success has been ocean containers deployed via Veracruz or Altimira, at least then you’re a bit more inland with shorter drays or rail options. I’d say there is good reason neither BNSF or UP has launched that foray but the latter holding an equity position in Ferromex.
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