CN9634 wrote:Googling the stock tickers shows similar data to what I have, not sure how NS is bigger than CN from what you've seen maybe you looked at a different figure.
I think my lack of clarity in one previous sentence is the source of confusion. I should have written "Inspite of [CN's] larger market capitalization, NS is the more profitable company."
My post on market cap said this:
Market Capitalization (stock exchange:symbol)
Canadian National: USD $70.24B (NYSE:CNI)
Norfolk Southern: USD $49.40B (NYSE:NSC)
Canadian Pacific: USD $37.81B (NYSE:CP)
CN9634 wrote:I have an MBA so I understand how 'stock' works. Its not as elegant as you put it, and its certainly not printing free money-- its an equity trade off too that needs to be approved by the Board. Issuing too much stock can really start to hurt your financials and impact the EPS, which is important to investors. Before you offer up more stock you really need to do your homework in be in an affirmative position with all parties (options likewise) so its not something you do lightly as you suggest.
Issuing USD $1B in stock certainly is no small thing. On the other hand there are multiple ways it can be done including the use of tranches. I would be curious what your take is on the potential tax advantages of equity vs. cash.
In fact a large part of the PSR model has been repurchasing stocks whenever possible, trying to keep the share count low and the price high.
The so-called PSR "model" also seems to involve some practices in accounting which use non-standard industry metrics in order to be able to support claims of gains on operating ratio. I have little doubt that "PSR" produced cost savings and reduced marginal revenues. On the other hand the operational practices appear to have strained the physical plant to the breaking point. I'm unimpressed with businesses that grind down their human and physical capital. That is simply acceleration of depreciation in an attempt to extract short term profits. There is nothing especially smart, creative or special about that strategy.
CN9634 wrote:Besides lets think about Mellon, guy is trying to retire so you think he's going to just assuming a ton of stock for what? His retirement? Oh wait. And you think he'd blow up the trading volume in a single day and dilute the value? You know for a stock to be worth something you have to quickly be able to sell it, if you create too much trading activity in a short period you can negatively impact the value of the whole thing. Not sure CN or whoever would be interested in that, assuming that PAR goes for ~$1B then thats almost 1.5% of the company, which from a single investor standpoint is a pretty large chunk. You know who the single largest investor is in CN? Bill Gates, he owns nearly 20% of all shares.
Here's an example of how this could be attractive:
1. Class I railroad shares produce dividends. Even at relatively low current yields (less than 2%) and P/E in the mid 20s that's still tens of millions of dollars a year in dividends. It's right around $15M to $20M per year for $1B in shares. That could be very close to current net income to Mr. Mellon from Pan Am. At this point Class I dividends look like a relatively stable form of fixed income that requires far less work than keeping an eye on a company.
2. Tax implications of a cash sale are pretty significant. If you have to book the income in a single year the tax bill would be astronomical. There is significant potential for capital gains taxes on the initial investment given the potential sale price. Mr. Norman your thoughts on taxes and potential corporation or trust structures are most welcome.
3. Equity has both upside and downside risk. However over time it generally outperforms cash. Any estate planning for generational succession could consider equities an attractive vehicle for a low tax burden transfer of wealth.
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