Engineer Spike wrote: ↑Thu Apr 22, 2021 11:23 pm
I'm not all too worried about the CN offer. While skimming the pages of this esteemed site, an ad showed up for a CN date touting their safety and efficiency.............................blah blah.......
Look back to the BNSF merger. When BN made a bid on Santa Fe, UP made a counter offer. Look what happened. I agree with the points about having balanced systems, which could prevent the next round of mergers. CN already has its line to the gulf. I do think that Mexico is the big draw, but how secure is the operating franchise? I remember hearing noises a few years ago that the government of Mexico was making noises about revoking it. Maybe it was a ploy to have some cash pushed their way. We can argue these points all day long. We will just have to see where the chips fall.
My take on the whole deal is that both CP and KCS have their backs against the wall. They are the two smallest class one carriers. CP has made some dumb moves by selling east coast lines, namely the D&H, which they never really pushed at hard enough. I also feel that they could have made noises during some of the other large mergers, such as Conrail, to fill some gaps in they system. KCS is up against being taken over by equity firms. They are surrounded by the four US class ones and on Canadian.
My speculation is that if CN does manage to out bid, and also win approval by three governmens, then CP will have to look elsewhere. Maybe they can dust off Hunter's bid for Ns. Another possibility is to buy lines from NS, and maybe others. I mentioned NS because of their present slash and burn version of PSR.
To clarify -- there is no regulatory involvement from Canada as no lines are being transacted there. Also, MX is the wild west, so regulatory involvement, if any, is a joke. STB is the hurdle.
Competing with Conrail, eventually CSX then to a lesser degree NS / NYSW via the D&H Line from a Canadian RR was always an uphill battle. The Eastern US Class I networks are far superior in terms of reach and pricing. It's certainly too bad but not a bad move for CP to have divested the D&H south lines really having no value to their core business. The real tactical error was selling East of Montreal to SJ back in '95, which has been partially rectified. Fred Green was really a lame duck CEO for many years that let CN build not just a slightly superior, but extreme well advantaged system over CP. Now they are playing catch up and KCS makes the logical choice to leap forward.
There is no way CN can pass a regulatory hurdle without major concessions with the north-south USA corridor for all the various reasons already mentioned vs the CN/IC corridor. I'm unconsciously biased towards CP admittedly, but I see CN having a harder case to make to the STB. I still won't exclude a situation where the STB tells CN sure, you can have some lines, but KCS will need to divest of certain corridors to CP.
The question I have is, if CN can obtain the sought access to MX, what would satisfy CP? For instance, if CP obtains KCS lines into Baton Rogue, NOLA, and perhaps even parts of TX, would that keep them in the competition? It's possible given the energy play, intermodal into the Gulf and other commodity groups but falls short of achieving their USMCA goal. Even still, CP with just the US side of KCS lines I think keeps them as a strong competitor so I wouldn't exclude that scenario.... they likely could get those lines for a reduced price against the whole, and under a technicality of breaking the original deal, might get a $700M discount off that reduced price (or let's call it a rebate).
Owning and managing rail lines in MX would personally worry me, there is still a ways to go in terms of infrastructure and safety as well as other aspects. Surely KCS has had a good go of it, but I don't see the chasing of 'OR' or implementation of a true PSR (KCS did something similar but not exactly) working well south of the border at the moment. That's not a dig at the Mexicans, its just an opinion I have having worked with several industrial manufacturers in MX before and seeing culturally first hand. It may prove to be a larger management challenge to operate a RR in three countries than two .... just sayin'
