CSX / CP Merger

Sounds like this isn't going to happen, but wall st. journal is reporting this, so it's worth noting...

http://online.wsj.com/articles/canadian ... 1413141950" onclick="window.open(this.href);return false;

Quote from the article:
"Canadian Pacific Railway Ltd. (CP.T -4.69%) has approached (CSX Corp. CSX -2.57%) about a combination that would unite two of North America’s largest railroad operators, according to people briefed on the matter.

The overture, made in the past week, was rebuffed, the people said, and it is unclear whether the Canadian company has shelved the effort.

A deal between the two companies would give rise to an industry giant with a combined current market value of some $62 billion and, potentially, an increased ability to take advantage of the North American energy boom."

As a side note, there's long been talk that CP is looking to sell or will announce the sale of the former D&H soon - which would probably help with the regulatory issues a CP/CSX merger would raise.

I think CP is desperate as they haven't been doing well for a while now. I wouldn't expect any merger any time soon.

I don't think this is over. David LeVan didn't want to merge Conrail with NS either. CSX stock is pretty cheap. CP has been selling everything, so must have some cash stashed. Hunter has likely consulted Ackman about this. CP and Ackman could buy enough shares to elect a board which would be willing to merge.

Even if this does not pan out, it might be the catalyst for the next round of mergers. The time is right because Conrail has been digested fully, as has SP.

For ready reference, here is discussion of the proposal over at the Canadian Pacific Forum:

http://www.railroad.net/forums/viewtopi ... 1&t=157806" onclick="window.open(this.href);return false;

CP is doing better financially than most Class I railroads, yes they have capacity issues, but so do BNSF, CSX, and NS, to a lesser extent so does UP. As far as the D&H goes, they are only selling the southern portion. Almost certainly to NS although it hasn't been announced as final details haven't been hashed out yet. If any of you watched the CP Investor's Day webcast you would know that the sale was only the southern portion. CP will keep the line to Albany and also Mohawk Yd.

As to why CP has been selling lines lately, the sale of the original DM&E west of Tracy, MN was due to the serious need of upgrading(in particular west of Pierre) and the lack of Shuttle Elevators. The portion of the DM&E between Huron, SD and Tracy, MN had to be included to make the line viable for G&W. CP kept the line from Tracy, MN east due to a pair of large Shuttle Elevators just east of Tracy.

Further insight gleaned from the Investor Day presentations, is that CP intends to install CTC to all of their mainline trackage. Moose Jaw, SK to Glenwood, MN is currently underway with some portions up and running. Next will be Winnipeg, MB to Glenwood, MN, as CP intends for this to become the main route for heavy Canadian crude headed to the Gulf Coast. Eventually they want La Crescent, MN to Kansas City, Chicago to Sabula, IL, and Montreal, QC to Rouses Point, NY to receive CTC.
EHH stated that when he took over CP that 30% of the mainlines were CTC equipped, the lowest in the industry, and that it is CP's intent to increase that to 70% by 2020.

Separately it is speculated that CP's sale of the southern portion of the D&H and its overture towards CSX is intended to gain control of the Indiana Harbor Belt Railroad. CP owns 49% of the Harbor, with NS and CSX equally splitting the remaining 51% ownership. The theory goes that CSX will agree to sell its share to make CP go away, and NS will trade its share for the southern portion of the D&H, and perhaps some money.

Engineer Spike wrote:I don't think this is over. David LeVan didn't want to merge Conrail with NS either. CSX stock is pretty cheap. CP has been selling everything, so must have some cash stashed. Hunter has likely consulted Ackman about this. CP and Ackman could buy enough shares to elect a board which would be willing to merge.

Even if this does not pan out, it might be the catalyst for the next round of mergers. The time is right because Conrail has been digested fully, as has SP.

I don't think it is over either. CP + CSX might be the most natural merger in the entire industry, especially once the D&H leaves CP control. Like I said in the CP forum, I think the combined company would have to divest itself of the IHB because CSX already has a Chicago belt (the BOCT), but otherwise there are few to no areas where the two lines compete.

Look for MAJOR growing pains if the companies merge though. UP + SP will be a cakewalk compared to CP + CSX, in my humble non-railroader opinion, even with Harrison at the helm.

CP and CSX have many gateways. They can make it happen. I worked for BNSF in Chicago, when they merged IC. And the same with BNSF. Both roads were run separately. Incremental changes were made. A whole new operating scheme on day one was one of PC's downfalls. Hunter did a good job not turning Chicago into a parking lot with each new road merged. Even now CN is working on new interchanges and improvements to integrate its Chicago roads, especially EJ&E.

CP-CSX has many gateways at it disposal. 2 Soo Line Canadian routes, Buffalo, and Montreal-D&H-Selkirk. Who knows what will happen to CSX's Montreal line. It might get shortlined.

how would this potential merger affect conrail shared assets?

A good point, Mr. Steve.

Conrail Shared Assets is presently a 50-50 ownership between CSX and NS, of CRSA's service areas, CP presently serves Detroit and, through CRSA, has access to the major industries, i.e. autos and related supply sources, located in the region.

A merger should have no effect on that arrangement.

To another merger related point. Mike Ward has now "weighed in" at the Wall Street Journal:

http://online.wsj.com/articles/csx-decl ... 1413379426" onclick="window.open(this.href);return false;

Brief passage:

CSX Corp. Chief Executive Michael Ward said on Wednesday that railroad industry mergers could exacerbate congestion and traffic problems, not alleviate them.

Mr. Ward wouldn’t directly address Canadian Pacific Railway Ltd. ’s proposed merger with CSX during his company’s third-quarter earnings conference call with analysts. The company had said it wouldn’t comment on recent reports.

But in response to an analyst question if consolidation was needed to alleviate tightness in the rail industry, Mr. Ward argued it could make matters worse.

“You might actually see a step back,” he said, adding “in past mergers, there have been severe service disruptions after one of those transactions.”

For this reason, Mr. Ward said he believed rail regulators would be “very cautious” about any proposed industry consolidation since they are already “very concerned” because the rail network has been slowed by the recent increases in rail volumes.

What we must not lose sight of that by any measurement of size CSX is of course considerably larger than is CP. However in terms of "market cap", i.e. stock price of all shares, CP, owing to the efficiencies initiated by present management, exceeds that of CSX.

Best advice to Mr. Ward and his consorts; get that stock price up if it is your intent to reject this merger proposal.

I think that you are right on Mr. Norman!

I have just increased my holdings in CSX because either Mr. Ward will drive up the stock price, or a bidding war may start.

no merger
http://www.progressiverailroading.com/c ... ays--42287" onclick="window.open(this.href);return false;