CANADIAN NATIONAL ENTERS BIDDING WAR WITH CANADIAN PACIFIC FOR KANSAS CITY SOUTHERN

Assuming CN gets a leg up... perhaps there's still a case to be made for CP to be aligning with UP.

There'd be some redundancy and minor duplication, but I could also see the somewhat parallel Soo/MILW and CNW mains being a plus- coordinated, it could become a separated two track main between Chicago-Milwaukee-St Paul (something UP already does in Texas).

CP currently runs on the UP to get from their Chicago-Milwaukee line into Bensenville, and I'm sure that real estate (immediately adjacent to O'Hare) could be put to better use by the Tollway (who already wants to build an interchange there).

Chicago has more than enough intermodal capacity, and that same connection for CP on the UP leads to Proviso.

If Canada really has no say, maybe STB could swallow two at once.

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eolesen wrote: ↑Fri Apr 23, 2021 2:32 pmIf Canada really has no say, maybe STB could swallow two at once.

Canada would have a say about UP taking over CP (or CN).
And if you believe CP would be buying UP ... I can't help you. :

The next step is up to KCS. The STB has the CP-KCS deal in front of them now and should be making some initial rulings as to the rules under such a merger would be reviewed. There is no CN-KCS deal unless KCS accepts their offer. There is nothing for the STB to decide on a CN-KCS merger until a merger is presented as more than a hypothetical.

Mr. Norman, you made a good point about the Canadian government not really having a direct iron in the fire. I should have thought that point out a little better. However, my point about the D&H sale is not something which I would retract. Sure CP's policy through the 1990s and 2000s had been to focus on the bulk trains, and long cross continent business. The problem is that there are five other carriers which can provide the same service. With D&H they of course didn't have the market penetration of NS and CSX. They did have something that no other carrier with Pacific access has, which is direct east coast access. It is also hard to ignore that even though the rust belt industry is long gone, the population density of Baltimore, Philly, NY?NJ requires the delivery of goods, whether in a boxcar or container.

I might be totally wrong, and EOlesn's point about CN's cash offer might hold water. My thought is that what can CP offer, which is better than what someone else can? Being a relatively small railroad, they can't offer the single line service the others can. This is wh I think that it is do or die time for CP. They need to have at least one niche where they can provide a service which is better than someone else.

justalurker66 wrote: Canada would have a say about UP taking over CP (or CN).
And if you believe CP would be buying UP ... I can't help you. :

Nope, no pretense of CP being able to take UP.

What I'm suggesting is that UP could absorb CP's Soo subsidiary with a joint traffic agreement. It could be done with a swap that has both companies having an equity stake in each other, or even running Soo as a JV owned equally. Think Air Canada and United, or Westjet and another US carrier (they've made several aborted attempts).

If a deal involves US assets only, Canada couldn't block it.

Coast to coast merger proposals are inevitable.

CN gaining KCS might be the one that gets things moving, but eventually some combination of CP, CN, CSX and NS are going to become part of UP and BNSF, either thru outright merger or via JV...

I could totally see that some or all of the Soo Line becoming a JV like Meridian Speedway LLC. The Chicago to St. Paul main would allow UP to abandon or more likely shortline much of its route across Wisconsin. In return CP would get access to the Spine Line to access Kansas City. Both would also agree to quote joint rates from Canadian points to points south of Kansas City. Finally it would let CN know that CP won't roll over and play dead.

Yep, more or less what I'm suggesting, although I'd still keep both the UP line from St Paul to Milwaukee (Altoona and Adams Subs) as well as the CP. That's the only significant CP and UP overlap.

UP between Milwaukee and Chicago can't handle double stacks, CP can. That might present an opportunity to shift Amtrak over to the UP Milwaukee Sub and keep the CP C&M main all freight.

I don't believe either line is height restricted St Paul to Milwaukee, but neither is double tracked aside from passing sidings. In concert, they could run opposite directions and act as one. BNSF doesn't need it, and I don't think the State of Wisconsin does either.

The Soo becoming a JV between UP and SOO is an interesting alternative to a UP-CP merger. I see two big problems with it.

1. Competition. UP (ex-C&NW) and CP/SOO (ex-MILW) both have parallel, competing lines between Chicago and Milwaukee. This poses a problem since UP would have ownership of one line and partial ownership of another line. This could be solved by bringing in BNSF in this corridor via trackage rights or selling the ex-C&NW line between the two points. UP and CP/SOO also have competing lines through CP/SOO's ownership of the ex-D&ME/IC&E rail system. CP has said that these lines will begin with wither away upon a CN-KCS merger. Selling these lines to a Class II would solve the competition issues.

2. I don't think that simply turning the SOO into a JV would do enough. CP has said that they will have to seek a merger partner if CN-KCS goes through; however, the political environment may not allow for such a possibility. So in the event of a CN-KCS, what can CP do?

There is another north-south line that CP could use to get to Mexico and the Gulf that everyone seems to forget about. This line is the ex-Rock Island from the Twin Cities to Kansas City, then the ex-KATY from Kansas City to Dallas-Fort Worth. From Dallas-Fort Worth, it is a relatively short distance to the Mexican border crossings of Eagle Pass, Laredo, and Brownsville in addition to the chemical-rich areas surrounding Houston.

Here's my idea: Make the SOO a JV between UP and CP but include this Twin Cities-Mexico corridor along with it. This gets UP to the Bakken Oil fields while getting CP to the Gulf and the Mexican Border. In order to preserve competition in the Upper Midwest, sell the ex-C&NW between Chicago and the Twin Cities to BNSF, and sell the ex-D&ME to a regional. UP can get a 15%-20% share in CP to sweeten the deal. It's the closest thing to a merger that the two railroads can do, without actually being a merger.

BNSF already has their own double tracked line between Chicago and the Twin Cities (former CB&Q)... It runs west to near Savannah, IL and then follows the Mississippi River up to St. Paul.

The only thing that trying to sell either the ex-CNW or ex-MILW Milwaukee-Twin Cities lines would do is give BNSF access to Milwaukee, which isn't exactly a hotbed of activity these days. It's pretty much a crew change point and an Amtrak stop. What little local business is left is handled by the WSOR. CN barely stops there anymore... It's a straight run from Fond Du Lac to Chicago via Dupyville. Two of the lines they sold off to Watco were serving the north end of Milwaukee, so if they don't have any interest, I'm not so sure that BNSF would.

No, I didn't forget about the Spine Line, but you're right it would be a straighter shot for oil trains heading to Houston, and including in a JV might be a good sweetener. It gives the access I'm guessing CP wanted from KCS.

What I suggested on another forum was giving UP access to the ex-MILW between Milwaukee and St. Paul, in return CP would get St. Paul to Kansas city via the Spine Line. In addition CP and UP would agree to make joint through rates between Canada and Texas, and Louisiana via the Spine Line. CP and UP would continue to compete everywhere else.


BTW - The STB agreed to consider the CP - KCS merger proposal under the old rules today.

JayBee wrote: ↑Fri Apr 23, 2021 10:02 pm BTW - The STB agreed to consider the CP - KCS merger proposal under the old rules today.

A win for CP. (References removed ...)

The Board finds that the waiver provision under 49 C.F.R. § 1180.0(b) should apply to this Transaction. Accordingly, review of this Transaction will be governed by the regulations contained in 49 C.F.R. part 1180, subpart A in effect before July 11, 2001. The Board makes this finding for several reasons. If approved, the combination of CP and KCS, the sixth largest and seventh largest Class I railroads, respectively, would still result in the smallest Class I railroad, based on U.S. operating revenues. In addition, a merger of the CP and KCS networks would appear to result in the fewest overlapping routes when compared to a merger between KCS and any other Class I carrier. The interrelationship between the CP and KCS networks in fact appears to be end-to-end in nature which likely raises fewer competitive concerns than a transaction that is not end-to-end.

In sum, the Transaction appears to fall neatly into the Board’s rationale for adopting the waiver in the first instance. The Board has considered the objections filed by those commenters arguing the waiver for transactions involving KCS should not apply to this Transaction, and finds that those commenters objecting to the waiver have not shown that the waiver should not be applied to this Transaction. Rather, the Board finds more compelling the reasoning offered by Applicants in their reply that the waiver in the current merger rules is applicable to this Transaction.

STB Decision (PDF)

One of the five board members dissented due to the Canada-Mexico connection.

Wonder if the new passenger lines being built in Mexico to Merida and Cancun will be allowing some freight traffic and how will that figure into these dealings ?

west point wrote: ↑Fri Apr 23, 2021 11:42 pm Wonder if the new passenger lines being built in Mexico to Merida and Cancun will be allowing some freight traffic and how will that figure into these dealings ?

Freight is part of the plan but completion of the system is years away and doesn't affect connections with the US. KCS did express interest in running the freight lines.

Interesting to learn from yesterday's STB Decision that, first, the CMQ, DME, and D&H remain as stand alone entities from the SOO and that, combining all of them as a measurement, they represent a larger entity than does the KCS (US only).

I further think interesting that the Dissenting Member Primus makes the only reference to Mexico. The majority do not.

I happen to hold that's what CP-KCS is all about - Mexico and NAFTA (or whatever the Trump treaty is named) commerce in a Mexico with sufficient political stability to allow more of such - and Lazaro Cardenas becoming a "World Class" maritime port.

Correct me if I'm wrong, but the STB ruling simply says it's not blocking KCS and CP.

This still has to get past shareholders and the KCS board, so CN's offer ain't dead yet.

I also wouldn't rule out further consolidation including CPKCS and UP...

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eolesen wrote: ↑Sat Apr 24, 2021 9:11 am Correct me if I'm wrong, but the STB ruling simply says it's not blocking KCS and CP.

This still has to get past shareholders and the KCS board, so CN's offer ain't dead yet.

Okay some more thoughts on what happens next.

First the STB ruling does not say it won't block the CP - KCS deal. Though I would be shocked if in the final ruling they did more than just attach conditions. It says that the CP - KCS decision will be decided under the rules that the STB laid out in 2000 rather than the newer rules. The newer rules will require much more paperwork from the applicant. It also will likely lead to more hearings before the STB probably delaying the final decision by as much as six months.

CN's offer is most assuredly NOT dead. I would expect the STB's next announcement to be, under what rules it will consider CN's application.

After that decision I would expect the STB to consider both applications for Voting Trusts. I hope the STB at least denies CN's Voting Trust, but expect them to reject both. Accepting the Voting Trust from CP but not CN would just likely lead to a lot of lawsuits, so I don't think that will happen. If they accept CN's voting trust at all they will limit their choices in what happens to KCS.

I expect the STB will consider both applications simultaneously and render both decisions with conditions on the same date.