PAS potential acquisition scenarios

There's been a lot of posts during the year discussing an NS takeover of PAS, a "tightening of the reins" to go along with the NS thoroughbred symbol, without any consideration of the long history between NS and PAR or the regulatory and economic realities. The STB would have to approve a 100% NS takeover and surely CSX would have grounds to fight it as anti-competitive with G&W probably coming to the party pissed off. Anything anti-competitive in this era is going to have a hard time being pulled off. Then there's the NS bean-counters who would have to justify the purchase and additional operating costs of taking over PAS on the margin which might be difficult even in good times, but NS has its own problems to contend with and as long as their auto and intermodal franchises aren't threatened I think their own justification to assume 100% control of PAS is particularly low. And, lastly, there is the long-term relationship between PAR and NS which has always been hand-in-hand and deep, passed from one generation to the newest. PAS (and the purchase of the ex-D&H lines from CP) are defensive NS moves aimed at protecting their New England franchise more than anything else. While business will trump in the end analysis, I wouldn't underestimate the relationship and don't see the two parties working against each other unless there is a total threat to, again, the NS intermodal and auto business (which hasn't been the case up until this point). I'd be surprised to see NS make a move to take PAS, with or without PAR's blessing, and, I think the relationship give and take will continue just as we've seen it up until this point.

Well, you're the only one I know who doesn't see a PAS takeover in the crystal ball, and that includes those attending meetings in Roanoke.

The STB would approve the deal without batting an eye.

Odd place to meet, given NS's Roanoke offices closed in early 2015.

No. Operations is still there at the Virginia District office. The back office positions (the high rise they closed) were consolidated to Norfolk and Atlanta HQ.

Of course NS still has a presence in Roanoke, primarily mechanical. Let me rephrase: Odd they'd have such meetings at an unrelated division office.

Other than nitpicking I don't think it really matters which office Pan Am was getting berated in The general consensus among the attendees that I know we're once the D&H fell they wpull be next.

Seems like CP wants to grab NS for themselves,are there any "poison pills" to protect PAR from a CP
"takeover",or a STB ruling adding PAR to a CP+NS merger?
(think along the lines of the PC+NH "shotgun" merger)

If CP bought Norfolk Southern i believe there would be a comment period before the Southern in PAS could be replaced by CP.

This is the same type of BS ploy Harrison pulled a year ago with CSX to raise stock prices. Next year it will be KCS.

The merger will not occur in a million years
Not only will NS shareholders object but the STB will not allow it. The mega mergers are over with.

Anti-trust hurdles are going to be no less onerous with CP making a go at NS as they were with CP making a go at CSX last year. Until this starts advancing smooth-sailing to a very late stage of deal consummation it probably shouldn't be taken any more seriously than the CSX attempt. Does make for a nice means of goosing the stock price, so CP doesn't have to believe their chances are better this time around. That could just be their primary goal, and if it goes far enough to actually land NS that just ends up gravy.

At any rate, we're weeks away from being able to discern if there's anything serious behind this. And weeks was all it took for last year's CSX bid to go from open to shut.

60-second take

CP/NS is laughable but not impossible

If STB had problems with NS taking over all of PAS, they wouldn't have approved the formation of PAS to being with. Now PAR is another matter...

PAS has under-performed in some areas, but done as well as it could (considering) under the current mix. It has reached a point where the next logical step is for full NS control now that they own the D&H South Lines

IF you think NS won't take over PAS, ask yourself who else would be able to, and why would NS create any risk that they wouldn't gain 100% of an asset they've pulled 9-digit figures into. Think about that for just a minute.


I'd like to move to close this topic in favor of keeping discussion on the PAS thread.

Most of these posts were originally part of the main PAS thread, but I was asked to separate them out into their own thread. We'll leave it as-is for a few days so discussion can continue, and then we can reevaluate.

My take on the regulatory dimension of a complete NS takeover of PAS is the following. The STB approved a PAR/NS joint venture, operated by PAR, with PAR carload and NS auto/intermodal commercial control. They did not rule on any number of what-if's possible down the road. However, 100% NS control of PAS is different from what the STB approved. 100% control would need STB approval. CSX has an annual 8-digit interest in PAS and would likely protect this, at the least. Unit trains could be protected with rights, but (loose) carload would probably prove to be more difficult. NS can protect its PAS investment without 100% control and there are other parties that could fill PAR's role if that were necessary. The key is keeping PAS more independent than not, I believe, or, striking a deal with CSX (and any other legitimate aggrieved party), should PAR bow or get shoved out, but what are the odds? I don't think there is a precedence for a Class 1 in a joint venture then assuming 100% control of the joint venture also interchanging with another class 1. Seems like a pretty high hurdle.

Acquisition of half of the share of a previously approved joint venture with a smaller-size Class II is too big a hurdle. In other news, this week CP is making its second bid in as many years at a takeover transaction of another Class I.


The Aristocrats?

QB 52.32 wrote:My take on the regulatory dimension of a complete NS takeover of PAS is the following. The STB approved a PAR/NS joint venture, operated by PAR, with PAR carload and NS auto/intermodal commercial control. They did not rule on any number of what-if's possible down the road. However, 100% NS control of PAS is different from what the STB approved. 100% control would need STB approval. CSX has an annual 8-digit interest in PAS and would likely protect this, at the least. Unit trains could be protected with rights, but (loose) carload would probably prove to be more difficult. NS can protect its PAS investment without 100% control and there are other parties that could fill PAR's role if that were necessary. The key is keeping PAS more independent than not, I believe, or, striking a deal with CSX (and any other legitimate aggrieved party), should PAR bow or get shoved out, but what are the odds? I don't think there is a precedence for a Class 1 in a joint venture then assuming 100% control of the joint venture also interchanging with another class 1. Seems like a pretty high hurdle.

Your analysis infers that NS is willing to invest at least $150M just to be barred by competitors and regulation that may result ultimately in the initial investment (Not to mention the subsequent investments made afterwards) lost or not living up to the predicted return. Why would NS even enter into an agreement without an exit strategy, IE assuming 100 percent control. To suggest such a thing is just foolish. But then again, you are the one who says that railroads don't make money ultimately.

CN9634 wrote:

QB 52.32 wrote:My take on the regulatory dimension of a complete NS takeover of PAS is the following. The STB approved a PAR/NS joint venture, operated by PAR, with PAR carload and NS auto/intermodal commercial control. They did not rule on any number of what-if's possible down the road. However, 100% NS control of PAS is different from what the STB approved. 100% control would need STB approval. CSX has an annual 8-digit interest in PAS and would likely protect this, at the least. Unit trains could be protected with rights, but (loose) carload would probably prove to be more difficult. NS can protect its PAS investment without 100% control and there are other parties that could fill PAR's role if that were necessary. The key is keeping PAS more independent than not, I believe, or, striking a deal with CSX (and any other legitimate aggrieved party), should PAR bow or get shoved out, but what are the odds? I don't think there is a precedence for a Class 1 in a joint venture then assuming 100% control of the joint venture also interchanging with another class 1. Seems like a pretty high hurdle.

Your analysis infers that NS is willing to invest at least $150M just to be barred by competitors and regulation that may result ultimately in the initial investment (Not to mention the subsequent investments made afterwards) lost or not living up to the predicted return. Why would NS even enter into an agreement without an exit strategy, IE assuming 100 percent control. To suggest such a thing is just foolish. But then again, you are the one who says that railroads don't make money ultimately.

CN9634, I never once wrote that "railroads don't make money ultimately" and challenge you to prove otherwise.

NS made the investment in PAS structured to inject the capital while carefully avoiding non-competitive issues. How those competitive issues would change from a 50/50 joint venture with PAR controlling carload commercial activity and operations with NS running auto and intermodal on PAS to 100% NS control is nuanced, but important. Additionally, you fail to comprehend that NS can protect its investment without 100% control of PAS. And, even if they went in with the belief that they would eventually get 100% control, it doesn't mean they haven't been wrong before.