• 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

  • 178 posts
  • 1
  • 5
  • 6
  • 7
  • 8
  • 9
  • 12
  by CN9634
 
Best case: CP rebuffs offer if they can afford it
Worst case: KCS gets split up
Worser case: CN gets it (massive cuts to KCS)
Worst worst case: STB tells everyone to pound sand and issues a merger cool down period (think CN-BNSF)
  by Gilbert B Norman
 
Front page; "above the fold":

http://ereader.wsj.net/?

Considering that yesterday, with the Chauvin conviction, was "not exactly" a "slow news day", the significance of the story, at least to The Journal's editors cannot be dismissed. Here's the story from The Journal:

https://www.wsj.com/articles/canadian-n ... 1618915544

Fair Use:
Canadian National Railway Co. CNI -6.76% made a roughly $30 billion bid for Kansas City Southern, KSU 15.25% kicking off a bidding war for a railroad operator that has already agreed to a sale to another Canadian rival.

Canadian National offered $325 for each Kansas City Southern share, including $200 in cash and 1.059 Canadian National shares. The company said the offer represents a 21% premium to Canadian Pacific Railway Ltd. CP -2.81% ’s agreement to pay $275 a share, including $90 in cash, a roughly $25 billion deal reached last month.

The move sets up a tussle for a key strategic asset poised to benefit from an expected surge in economic activity as the world emerges from the coronavirus pandemic. Either combination would create the first freight-rail network linking the U.S., Mexico and Canada by connecting ports in the three countries.

Kansas City Southern, the smallest of the five major freight railroads in the U.S., plays a big role in U.S.-Mexico trade, with a network stretching across both countries. Its trains bring autos and other industrial products up from factories south of the border into Texas and the Midwest and haul U.S. farm goods back to Mexico. It also runs a rail link along the Panama Canal.
  by Gilbert B Norman
 
JayBee wrote: Tue Apr 20, 2021 10:39 am Why would Uncle Warren buy a Banana (KCS), peel the banana, throw away the banana and eat the peel. First BNSF would have to best CN's bid, second the STB would likely require BNSF to divest most of KCS' US routes as BNSF duplicates most of it.
Mr. JayBee, I agree that Uncle Warren already serves every major Gulf port New Orleans and West, and CN has both New Orleans and Mobile, but I think the "play" is all about Mexico.

It's of course a "long shot bet" that Mexico will attain sufficient political stability to enable high value finished goods to move X the border, whether they are assembled in the manufacturing districts around Monterrey, NL or handled through the Port of Lazaro Cardenas, Mich. Uncle Pete is already there with his stake in Ferromex, who, while not at present, will seek and be granted some form of access to the Port (I know I'm a "broken record" on this point; maritime companies want competitive rail - and will sail whereever necessary to have it). I doubt if Warren wants to be shut out of any potential traffic from down there, and I will not in the least be surprised if he enters the fray - at least involving some kind of combination with KCS-M.
  by Ridgefielder
 
JayBee wrote: Tue Apr 20, 2021 10:39 am I hope that CP was smart enough to get a substantial break-up agreement as part of the acquisition agreement.
CP gets $700mm if CN gets the KCS.
  by Ridgefielder
 
Gilbert B Norman wrote: Tue Apr 20, 2021 10:12 am Mr. Ridgefield, if CN were to route traffic off the KCS at Shreveport and on to the IC for the favorable grades, then that line would be more congested and adversely affect Amtrak operations.
Mr. Norman- I guess I need to explain a little further.

We often talk about "the Regulators" or "the STB" almost as if they're inanimate objects. They, of course, aren't. They are human beings who happen to work for the Executive Branch of the United States Government. The head of which, of course, is the President.

Now I've never worked for the government. But I have spent a large part of my career working in a capacity in which I am dealing with other companies that do or are seeking to do business with mine. If Company A wants my business, but I happen to know that the big boss doesn't like Company A because of trouble an associate of his had with them in the past, am I going to go out of my way to push Company A's case? Or am I going to look with more favor on Company B?

So, in this case-- is CN's rocky past relationship with Amtrak going to hurt them when they seek merger approval from the Administration of "Amtrak Joe" Biden?
  by Shortline614
 
CP is saying if CP-KCS is allowed, they will have to seek out a merger partner.

From Trains Magazine :
f Canadian National’s rival bid to acquire Kansas City Southern succeeds, Canadian Pacific would be forced to set off the final wave of railroad consolidation by seeking a merger partner.
https://www.trains.com/trn/news-reviews ... -cp-warns/

This one quote stuck out to me the most:
“A CN/KCS transaction would … destabilize the balance in the North American rail network that has prevented further consolidation of the six largest railroads for two decades. The CN/KCS transaction would eliminate CP’s friendly connection at Kansas City (converting a joint CP-KCS yard to a facility shared with CN). In the process, it would severely weaken (if not destroy) the viability of CP’s lines through southeastern Iowa and northern Missouri and leave CP an asymmetrically disadvantaged ‘odd-man-out’ in a six-railroad North America. Completion of a CN acquisition of KCS would create tremendous strategic pressure for CP to find a way to expand its market reach through further consolidation,” CP’s lawyer, David L. Meyer, wrote to federal regulators.
So if CN-KCS goes though, CP would have to seek a merger partner. Not only that, the ex-MILW (IC&E and DM&E) lines would be good as dead. CPKC is the only Class I merger that could happen and not cause "downstream" effects. It leaves 2 in the West (UP and BNSF), 2 in the East (CSX and NS), and 2 in Canada with access to the Gulf of Mexico (CPKC and CN). All 6 remaining Class I railroads would be in balance. No need for future mergers. Say what you want about CPKC, at least it has shipper support. I cannot see many shippers supporting CN-KCS if it leads to a merger scenario that leaves 2 Class I railroads left in the US and Canada.
  by Pensyfan19
 
This is not confirmed, but based on the maps of the remaining American class Is, I predict that CP will try to acquire Union Pacific. Yet, I feel that, in order to prevent CP from owning too much territory and further decreasing competition, as well as reaching Mexico and preserving the history of UP, CP should purchase UP's former C&NW and MoPac (and maybe MKT) trackage and leave UP to operate the rest of their trackage, since those are the most relevant general regions of the current UP system closest to the Mexican and Canadian borders. The remaining lines going to the Pacific Coast would not be relevant for CP in this case.
  by eolesen
 
Please, explain how CP plans to bid on a railroad worth almost 4x itself?

UP's assets are almost $70B.

CP's are about $14B.

Ain't gonna happen. Maybe the other way around, disposing of some duplicate assets in Chicago, Iowa and Wisconsin that neither BNSF or CN need...
  by toolmaker
 
CP buying UP would be the end of the UP steam program.
  by Gilbert B Norman
 
Ridgefielder wrote: Wed Apr 21, 2021 9:11 am We often talk about "the Regulators" or "the STB" almost as if they're inanimate objects. They, of course, aren't. They are human beings who happen to work for the Executive Branch of the United States Government. The head of which, of course, is the President...........So, in this case-- is CN's rocky past relationship with Amtrak going to hurt them when they seek merger approval from the Administration of "Amtrak Joe" Biden?
Again Mr. Ridgefield, CN contractual relationships with several US passenger train operators will have no bearing on the outcome of CN/CP/KCS regardless of what sentiments "The Man at the Top" of the chain has towards passenger trains.

The issue, if it even can be called that, is just a momentary "blip". Considering the weakening of the Kansas City Gateway with the surely downgrade to FRA Class 3 as N-S traffic "to the Mississippi Delta rolling down to the sea" is diverted on to the IC and the only use the KCS would have is serving Port Arthur.

That's just a start with the issues arising should CN combine with KCS.
Last edited by Gilbert B Norman on Wed Apr 21, 2021 12:17 pm, edited 2 times in total.
  by Shortline614
 
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.

As for the idea that UP would be willing to sell big chunks of its network to CP, it's a non-starter. The ex-CN&W is UP's primary Chicago link and the MoPac is apart of the "Chemical Corridor" that links Chicago with Texas. (Chemicals is the only part of UP's traffic base that has grown over the past decade.) The Steam Program is the least of my worries.

In other news, CN has issued a response. It's just one big deflect and doesn't address any of the issues that CP brought up:
CN today defended its proposal to acquire KCS, noting it had sent a pre-filing application to the STB, alerting regulators that it planned to seek to control KCS.“Our proposal to KCS is simple. We are providing greater and more certain value, and a clear path to closing. We have a better bid. We are a better railroad. We will be a better partner for KCS and the communities it serves. And we believe the STB and our customers will recognize that CN presents the best solution for the continued growth, development and prosperity of the North American economy,” CN CEO JJ Ruest said in a statement. “CN has made a superior proposal and is committed to satisfying the current STB merger rules. CN is confident that the STB will approve the voting trust, which will permit KCS shareholders to crystallize the value of its US and Mexico franchise, and then permit the STB to undertake the careful review process it should take following the closing into the voting trust.”
(From Trains Magazine)
  by CN9634
 
The question I have is CP willing to settle on some kind of split. Let’s say CP can get the parallel “legacy” KCS Lines in the USA would they be satisfied? but the question remains what about the MX railroad which seems to be the prize everyone wants. The CP transaction makes the most sense to me, and I think the CN offer is certainly disingenuous in terms of the competitive issues. The other question is does CP need to rebuff their offer on the predication that the CN offer wouldn’t pass regulatory hurdles? It’s a tough position but CP will likely match the offer from CN, given the already overvalued initial offering from CP. Good day to be a KCS shareholder.
  by Ridgefielder
 
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.
  by justalurker66
 
Ridgefielder wrote: Wed Apr 21, 2021 8:36 am
JayBee wrote: Tue Apr 20, 2021 10:39 am I hope that CP was smart enough to get a substantial break-up agreement as part of the acquisition agreement.
CP gets $700mm if CN gets the KCS.
CP gets $700m if KCS drops out of the merger (even if they don't end up with CN or another merger).
KCS gets $700m if CP drops out of the merger or $1 billion if the STB does not approve the transaction.
  by CN9634
 
From the CP Q1 Call today:

Allison Landry

So Keith, you suggested that at around 4 times leverage, that CN is locking up capital that could be needed for investment to capture growth and synergies. Should we interpret that as a comment as sort of unwillingness by CP to take up leverage to a similar range to come closer to the CN bid? And I guess I mean are you willing to raise your initial bid? Or is your view that you don't need to, because of the regulatory risk?

Keith Creel

Well, I think you just answered the last question. When it speaks to leverage, it's 4.6 is what I was speaking to. And I just frankly don't believe that's the right value proposition for our shareholders to put our balance sheet at risk, to use all of our capacity in our powder to take our ability to respond with shocks to the market. I just don't think that's a healthy place to go to at this point. And in all honesty, I don't have to think about that because it's not a true alternative. That's a hypothetical situation. It's not a real deal as far as I'm concerned. It's kind of fantasy land. So my answer would be it's nothing that we're considering at all.
  • 1
  • 5
  • 6
  • 7
  • 8
  • 9
  • 12