Proposed Norfolk Southern NS Canadian Pacific CP Acq/Merger

Milwaukee_F40C wrote: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.

Won't have any of the good western ports? Vancouver is the third largest West Coast port, after Los Angeles and Long Beach

bdawe wrote:

Milwaukee_F40C wrote:... This new "transcontinental" railroad may get better eastern ports, but still won't have any of the good western ports. ...

Won't have any of the good western ports? Vancouver is the third largest West Coast port, after Los Angeles and Long Beach

Not to mention le Port de Montreal, with 1.4m TEUs/year. (Vancouver has 2.8m.)

If NS and CP did merge, the combined company would access every major freshwater port on the Great Lakes, the St. Lawrence, the Hudson, the Mississippi and the Ohio, most of the ports in Louisiana, Mississippi, and Alabama, every port from Jacksonville to New York/New Jersey, and (through PAS) the ports of New Haven, Boston, and Portland. Still just the one port on the West Coast though.
sources: https://en.wikipedia.org/wiki/List_of_w ... iner_ports" onclick="window.open(this.href);return false; and https://en.wikipedia.org/wiki/List_of_p ... ted_States" onclick="window.open(this.href);return false;

Thanks for that info, mtuandrew. Just for comparison purposes, what would the combined port system look like if CP instead merged with KCS?

MEC407: CP+KCS would access the Ports of:

Pacific:

• Vancouver
• Lazaro Cardenas

Great Lakes:

• Thunder Bay
• Duluth (BNSF rights)
• Milwaukee
• Chicago/Indiana
• Detroit and Windsor
• Toronto
• Hamilton
• Buffalo (I believe)

East Coast and St. Lawrence Seaway:

• Montreal
• Albany

Gulf Coast:

• Mobile
• Gulfport, MS
• New Orleans
• Lake Charles
• Port Arthur
• Beaumont
• Houston
• Corpus Christi
• Brownsville
• Altamira and Tampico
• Veracruz

Riverine:

• St. Louis
• Kansas City
• St. Paul
• Chicago (already mentioned)
• Natchitoches
• Baton Rouge
• Vicksburg
• Columbus
• Yellow Creek

I see a decent number of Gulf and Great Lakes ports, too few major Eastern ports, and too few ports at all on the West (good luck funneling all the traffic from Chicago south through Lazaro Cardenas!) Also, the KCS and CP systems aren't all that synergistic - they cover different territories, but neither offers much in the way of better operating efficiency to the other. Both of them require a willing U.S. east coast partner to thrive.

KCS + CP + NS would solve the synergy problem by giving both CP and KCS the eastern access they need. Instead of needing to get all the way to Chicago, KCS can interchange in New Orleans, in Meridian, in St. Louis, or in Kansas City. CP could run trains through Chicago to points as diverse as Boston and Jacksonville, and could reach New York Harbor without needing to go through Montreal. It wouldn't help NS so much - there's still only so much you can funnel through Vancouver and Lazaro Cardenas - but that's the way it goes, since we aren't talking about a merger with UP.

The Port of Lazaro Cardenas has been addressed in various topics about the Forums. If CP+KCS, with or without NSC, is to be "on the table", there appears to be potential as a traffic source to which only KCS-M accesses.

Elsewhere, I have learned that post-PANAMAX continues to be delayed and that there have been serious construction issues resulting in concrete leaks.

Thanks for the additional info!

Zeke wrote: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.

Then why where there over a 100 letters of participation to the STB from Shippers in support of the D&H South End takeover of CP by NS? If what you say is true, those letters would have been in protest.

There is too little information in your post to speculate why shippers supported the NS purchase. Where there any letters of protest ? If so how many? Did CP give up service or service so lousy on the line the shippers figured anybody is better than what we have ? NS is a hidebound drag freight railroad the provides slow turtle like service. A shipper I work for part time receives 30-40 cars a week from NS gets a drill every third day. He has hundreds of cars in transit mostly out of Texas. The UP delivers the cars to NS on average in 3 days at New Orleans it takes two weeks on average to move them from NO to NJ. This shipper is basically a captive and other shippers in his orbit use trucks to move any time sensitive product and complain about NS slow service.

Service was not so poor that shippers felt compelled. No shippers protested. They filed in support because they felt they would get better service from NS as the railroad fit into their system better than does under CP. CP only cared about one thing and that is oil, and they kept that portion of the railroad.

Your example is of a very limited nature and does not warrant such an over generalized view of NS service in all service lanes as a whole.

I've worked directly with both eastern US class Is and CP and they all have their good and bads. Anyone but shareholdes who sees CP taking over NS being a good thing is nuts.

Does "Fortune" favor the bold? FORTUNE

<SNIPS>

Huge Hurdles, Upside in Proposed Rail Megamerger
...
But there are still some major barriers to getting the deal done.

To start with, Norfolk’s leadership quickly rebuffed the offer, which it characterized as “low-premium” because it was only 8% above its share price as of Nov. 17. The other problem is regulators, who would likely be hesitant to approve a megamerger in a sector that’s already arguably short on competition.
...
Norfolk Southern, like Canadian Pacific CP -0.11% before it, could be a smoother operator. Railroad efficiency is measured by the industry standard “operating ratio,” with a lower number reflecting a leaner operation. Norfolk Southern’s operating ratio was 69.2% in 2014, while Canadian Pacific’s was 64.7% and trending sharply downward. Yesterday, Harrison highlighted his yen for efficiency (and perhaps courted Norfolk Southern shareholders) by declaring that some of Norfolk’s rail yards are “not needed” and would be quickly sold off following a merger.

In addition to the promise of a streamlined Norfolk Southern, there are some big fundamental synergies between the two companies. Norfolk Southern NSC -0.02% controls rail primarily up and down the U.S. East Coast, while Canadian Pacific’s lines run largely east-west along the U.S.-Canadian border. Together, the two networks could connect East Coast ports with a huge swathe of North America.

But there’s a real chance that regulators will stop it from happening at all. “The U.S. Surface Transportation Board have shown no hesitation in shutting this kind of thing down,” says Robinson— as they did in 2000 when BNSF tried to merge with Canadian National. Railroads are particularly prone to monopoly thanks to high capital requirements—there are currently only seven major North American railroads. With much of the economy dependent on them, further consolidation could have serious systemic effects. In fact, a 2013 study by a group representing railroad customers found that rail freight rates rose 76% from 2003 to 2013 following industry consolidation.

A Wall Street Journal appearing this past Friday appears pessimistic; well if you're Yäger:

http://blogs.wsj.com/moneybeat/2015/11/ ... ill-grade/" onclick="window.open(this.href);return false;

Fair Use:

Before it can get on the rails, Canadian Pacific Railway Ltd’s proposed acquisition of Norfolk Southern Corp. has some difficult terrain to traverse.

Norfolk Southern hasn’t formally responded to CP’s bid, but it has pledged to evaluate the offer. Yet even while making that pledge, Norfolk Southern last week called the bid “unsolicited, low-premium, non-binding and highly conditional” — all buzzwords indicating an aggressive takeover defense is in the offing. Should CP choose to proceed with a hostile deal, getting regulatory approval could pose extraordinary challenges.

Unlike most other U.S. deals where the primary regulatory issue tends to be the effect on competition, a proposed merger of CP and Norfolk Southern would be considered by the U.S. Surface Transportation Board, which is required to determine if the deal is “consistent with the public interest.”

To figure out if the public interest is served in connection with railroad mergers, the law requires the STB to consider factors in addition to competition including the effect on transportation, the interests of employees and whether other railroads should be included in the deal. The public interest review by the STB can extend over many months, particularly if the deal sparks opposition. One competing railroad, Union Pacific Corp.UNP -0.15%, has already indicated it generally opposes rail industry mergers. Union Pacific said that “the regulatory hurdles for future consolidation would be significant.” Even CP’s proposal letter to Norfolk Southern assumed the closing would occur on December 31, 2017.

Interesting articles indicating the prevailing political winds starting to blow. If NS has the political juice to cry to the PAC's they contribute to I can see the pols in NS pockets will lean on the STB. If not Wall street is going to push hard on the merger as they are well aware of the big time cash to be wrung out of NS. They don't refer to Wall street as the big casino for naught. Newpy sorry mate but 14 day average transit time for loaded freight cars, in a 1300 mile NS service lane, is unacceptable and would indicate to the most casual observer the place is plugged up if not congealed. I would suggest anyone interested in the terrible condition of NS regarding its toxic relationship with labor and the incapability of management to run trains should join Yardlimits.com and lurk on the NS forum. New broom sweeps clean and EHH knows how to use one!

A) 14 day transit: All Class I's routinely publish dwell time reports. Unless your cars got forgotten, require an exorbitant amount of switching, or are bad ordered it's not happening routinely.

B) Toxic working environment.. welcome to railroading, I can tell you've never worked on one.

C) EHH can keep his broom to himself. It will only be used to squeeze dollars. The NS employees and local shippers will pay the price.

I say this as an NS shareholder.

Zeke wrote:Interesting articles indicating the prevailing political winds starting to blow. If NS has the political juice to cry to the PAC's they contribute to I can see the pols in NS pockets will lean on the STB. If not Wall street is going to push hard on the merger as they are well aware of the big time cash to be wrung out of NS. They don't refer to Wall street as the big casino for naught. Newpy sorry mate but 14 day average transit time for loaded freight cars, in a 1300 mile NS service lane, is unacceptable and would indicate to the most casual observer the place is plugged up if not congealed. I would suggest anyone interested in the terrible condition of NS regarding its toxic relationship with labor and the incapability of management to run trains should join Yardlimits.com and lurk on the NS forum. New broom sweeps clean and EHH knows how to use one!

So you are favoring the merger because you have more confidence in CP's leadership than NS' leadership.
Yet CP seems to want to immediately strip NS once they take over.

I agree with Newpylong that your personal experiences do not mesh with the facts at hand. Whether there is an issue with the shipper or you have your facts wrong is up to the reader to decide.

How likely would it be for NS to seek its own merger partner, gain a bunch of debt, and dissuade EHH? (KCS seems like a winner for NS, for instance, and it probably wouldn't raise as much ire for Surf Board.)