Proposed Norfolk Southern NS Canadian Pacific CP Acq/Merger

I think to watch this interview is worth your time.

i was interested in a few of the points he made especially related to the debt... for a company so entrenched in debt to levered up even higher - surely there is a limit somewhere, i found it interesting when he kind of stumbled at that point.

I also didnt care for how he basically put it out there that he plans to do an end run around the regulators by putting someone from his camp (of perhaps even himself) at the head of NS while awaiting for approval to 'begin the process' of putting CPS way of doing things in place without having to wait out the regulatory period. I found that to be particularly cheeky of him, especially when he smirks and acknowledged the law forbidding it then explained how he was going to get around it.

The rest wasnt anything he hadnt said before.

Anyone have any guess for how long Squires sits on it? I really wonder what NS's response is at this point. Their stock is spiked so high its nearly at $100 a share now, how much will it tank when or if Squires says no, how definitive of a 'NO' it will be or if he comes back with a counter offer and gets the deal done... The word right up until yesterday was NS has absolutely no desire to see this deal through, why continue to let it get to the point? EHH is clearly winning the PR campaign here

Consider this thought line -

NS (and CSX) are still recovering from the rate of returnless Conrail takeover in which the most valuable asset, the monopoly, was squandered. As a result both are now sitting awaiting an invitation from a Western cowboy to do the two-step.

How does one avoid the inevitable position of a wallflower By making a Pac-Man deal in which the purchasee's officials become the primary officers of the merged companies. After all, who is left at CP to assume these roles?

Should the merger/purchase proceed (and the STB is the determining factor), would not the new company become a hunter (pun intended) rather than prey? Perhaps the dawdling duo west of the Mississippi should be reconsidering their timelines.

Didn't both recover from (for the most part) the CR split?

To varying degrees, yes. By the metric the stock market looks at (and what CP is looking at) is their operating ratios; CSX is doing better than NS in this regard. But the halves NS and CSX took home from CR aren't necessarily equal. CSX got more northern assets, and they have been wholly disinterested in them from the get-go and been trying to get rid of as much of their New England territory as possible; I don't know how well their service quality is, and while it has to be comparatively better than a carrier like PAR, but I think it follows in suit that CSX's disinterest in New England would probably mean they aren't going to be doing as many courtship dances for customers as they might in other areas, or other railroads would do. CSX also locks up the shortlines who take on the successors to their branch freight rights with paper barriers to prevent any of them raking up enough of their trims to be able to expand. That's what NS is taking advantage of with PAS, as they can start providing better service quality in similar geographic areas that CSX is in, while also just providing just significantly better service than PAR alone could ever care enough to provide. I don't think something like that would ever come from the management school-of-thought Harrison comes from, and something I think could be at stake if the current NS management gets replaced.

Returning to the topic -

Does anyone seriously think that either CSX or NS is healthy enough to go after UP or BNSF? If not, what are the two Eastern Class I's to do?

Tangentially, what is a good rate of return on a $5 billion investment?

Multi, I think what Yama had to say was very revelant to any proposed merger when looking at it from a customer perspective, which I believe and hope the STB will be doing. Not sure if your "returning to topic" was intended to be snooty or not, but I think most people enjoy this type of information when browsing a thread, as opposed to threads going dormant. With regards to your question, I believe the western roads would be more likely to "go after" an eastern partner, rather than your suggestion, that would be my opinion.

The western roads are definitely fiscally healthier, no doubts about it. Geographically, they can move goods further distances because there's more wide open areas than the eastern seaboard; moreover, the place where the most intercontinental freight is moving is over the Pacific, so Western ports are shipping and receiving much larger quantities of goods than on the East Coast.

Cash is king (and so is land): Richmond.com

Which begs the question, will this force NS to divest some of its land holdings?

CP rail chief sees 'huge cash flow' from selling Norfolk Southern land

Canadian Pacific Railway Ltd. expects to generate substantial proceeds by selling surplus land owned by Norfolk Southern Corp. if its proposed $28 billion takeover of the U.S. railroad goes ahead.

“I think we’ll be able, like we did at CP, to take some of their yards that are probably not needed in my view, and convert them to maybe real estate and generate huge cash flow — huge — without having a negative impact on the railroad,” Canadian Pacific Chief Executive Officer Hunter Harrison said in an interview. “It’s gravy. It could be a lot. That’s why I’m excited.”

Any proceeds from divesting real estate would come on top of an estimated $1.8 billion in operational savings contained in Canadian Pacific’s merger proposal, said Harrison, who declined to give a specific revenue target.

Norfolk Southern has been cool to Canadian Pacific’s bid, branding the offer “unsolicited, low-premium, non-binding and highly conditional” after it was disclosed Nov. 17. Harrison has indicated he is willing to sweeten the cash-and-stock deal in his campaign to create a transcontinental railroad.

Selling off what they have not purchased yet? That is optimistic.

This is turning into a real HOSTILE TAKEOVER,CP already thinking of selling off real estate of NS.
Strange that CP thinks this will a quick transaction,STB and the SEC will put a stop to it soon enough.
OR at least slow the process down.
Is EHH that crazy???

Admittedly, Harrison has only been the big cheese at CP for 3/24 of the years D&H became a subsidiary, and came in after the point where the D&H was really being absorbed into CP proper (and was becoming more and more a paper railroad). Still, I totally agree with the general sentiment. While he definitely understands how to run a railroad competently, (unlike say, Mellon+Fink with PAR,) he's definitely a bean-counter first and foremost... his priority is about squeezing out as much revenue as possible.

This deal may go down as wall street likes the Ackman, Creel, EHH triumvirate. The boys see billions of dollars net milked out of the bloated NS hog and appealing to the stockholders is the way around the mean-spirited incompetent NS management more interested with battling the operating employees than running a lean and mean railroad operation. EHH has the CP operating ratio down to 59% and said last week he can knock a few more points off this year, a third quarter net profit of C685 million and the stock hovering near 150 dollars a share. The NS deal will pay off big with the treatment EHH is renowned for. Shippers are not in love with the spotty turtle like service NS provides as most employees are afraid to do anything including making a decision fearing some crazed overzealous manager may fire them. No this deal will happen as the NS hierarchy has created the most hidebound poorly managed railroad in modern history. The perfect condition for the wall street sharks to move in on. Buy NS stock and hang on.

I keep seeing phrasing such as that "this will create a transcontinental railroad". Isn't CP already transcontinental? This new "transcontinental" railroad may get better eastern ports, but still won't have any of the good western ports. I won't get excited about a real transcontinental railroad in the U.S. until a western class I merges with an eastern one. Sorry for the digression.