Proposed Norfolk Southern NS Canadian Pacific CP Acq/Merger

Mr. Stephens, such a proposal of NS+KCS would indeed raise objections to the Surf Board from "The Funk".

CP would simply hold that if one Canadian already has Lakes, i.e. Canada to Gulf access over their own rails (Funk; a rock group named Grand Funk Railway=Grand Trunk Corp.; otherwise CN's US operations) they will want it too.

I think that Yäger has touched off with this CP+NS initiative, the final round of mergers, which I think will be (I will keep check, albeit it from six feet under) NS+UP, CSX+BNSF, CP+KCS.

But even that would be preparatory to that final conglomeration into two giant North American companies. Seems that CSX + BNSF + CN (+ Ferromex) and NS + UP + CP + KCS/de M are how things are shaking out at the moment, with a resurgence in Class IIs and shared access for antitrust's sake.

Of course, I'll probably be watching THAT from a hole in the ground myself.

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!

NS is not that much of a basket case as your describe, else their stock would not be worth as much as it is today (closed at $95.06 per share this afternoon). Sure, there is room for improvements, but every corporation can improve one way or another. Think about this, in New England, at the close of the Conrail split, NS had no market share while CSX's former Conrail B&A line had four van trains each way every day and owed the auto traffic. NS worked a deal with Guilford and CP/D&H to move containers to an old Boston & Maine yard outside Boston. The service started small, literally a handful of containers on a dedicated train each way every day from Chicago. NS pushed the business hard, growing their business to 10,000 foot single-stacked trains and getting a J.B. Hunt contract along the way. Two other yards began in New York and Pennsylvania to supplement the New England service. They also worked a deal to move auto racks to a new yard near the intermodal yard. NS sunk funds into the track structure to fix it up improving overall train performance in 2009. Eventually, hopefully soon, NS will get double stack capability to further cut transit times. The truth of the matter is that NS themselves drove all of this business over the B&M line that saw just one daily manifest train in each direction before they began marketing the route to the west. It is hopefully an objective of NS to introduce north-south service now that the D&H south end acquisition has been completed.

Maybe what CP should be doing instead of trying to merge with NS is getting the IHB under their control through a deal with both NS and CSX verses spending huge money in a merger that may never get approved in the end.

I disagree somewhat on this as NS wants into New England in the worst way and it is more than likely they cut intermodal freight rates to secure business via the B & M route. Are they making any profits off this low margin traffic or is it a screw CSX at any cost to build up NS business ? How much cash have they dumped into the Busted and Maimed to get it up to 25 mph and most recently NS shut down their Triple Crown intermodal business citing it was losing too much money? I do agree NS has a excellent marketing team but the operating side of the equation is where they fall painfully short for the reasons mentioned in previous post's in this thread. This is well known inside the industry which is why Ackman and company are on the hunt. Warren Buffet looked NS over before he purchased BNSF and took it private. The Oracle of Omaha walked when he saw how strained labor relations were and over staffed the management side of things looked. NS is a common carrier and as such has an obligation to haul anybody's freight that shows up on their door step. However as a publicly held corporation the primary duty of senior management is to the shareholders. This will be where EHH and the boys will make their case.

Newpy my friend I do enjoy your posts but I must point out that 38 years in engine service on four Class one railroads, an official of the BLET for 11 years and operating without incident 125 mph Metroliners and 15000 unit coal trains will I believe qualify me to make learned posts on the state of railroading today and yesterday. I also have a few long time personal friends who have made it to the top of major railroads or close to it whom I rely on to give me the unvarnished truth when I pose a question. Trust me I know a lot more than I can reveal on RR.net without violating confidences or getting into hot water with some pikes legal department. IMHO CP will make a hostile bid for NS with major Wall street backing and may prevail.

They want into New England, but not bad enough yet to buy the B&M outright. The D&H was the first step towards doing that many believe. They have spent around $140M in 6 years on the Boston & Maine, and that includes two new intermodal yards. I am privy to earnings, they make good money on their pair of IM trains over this territory.

They are stopping Triple Crown because the cost of having standalone equipment is so high. How is this related to anything?

The deal with never happen. EHH can try all he may, the STB ultimately will not approve.

My apologies for questioning your train service. From mine, I have seen poor T&E/management relations on every railroad but the smallest.

CPF363 wrote:Maybe what CP should be doing instead of trying to merge with NS is getting the IHB under their control through a deal with both NS and CSX verses spending huge money in a merger that may never get approved in the end.

Last time I check, The Harbor is owned 49% SOO, 25.5% NS. 25.5% CSX. SOO (CP in the US) acquired their share when they bought the MILW lines from the Estate. The 51% NYC/Conrail interest was divided equally under the Breakup.

In short, Yager's got it right now.

Why The Harbor was not included in Shared Assets escapes me, but that water has long since flowed under the bridge.

Gilbert B Norman wrote:...
Why The Harbor was not included in Shared Assets escapes me, but that water has long since flowed under the bridge.

Soo lobbying at the breakup perhaps? Easier to play NS against CSX as minority shareholders, rather than having to deal with CSAO as a majority owner (even if CSAO is controlled by those same two roads.)

If I were at CP, I'd be looking to purchase NS's trackage rights and CSX's ownership in the ex-Michigan Central. Even if they EDIT: route most trains over NS trackage Water Level/Wabash, it's worth having a "home" route, especially one with continual state investment.

Frank Wilner made a blog post over on RailwayAge doing a rundown of future possibilities:

CP-NS: Voting trust and other conundrums

...
If CP and NS management reach a merger agreement in principal, CP will pay a yet-to-be-established premium above market value for NS shares—and the voting trust becomes integral to the holding of those shares while regulatory approval is sought for the merger.

Here is where CP shareholders assume a significant risk. As CP will pay a premium above market value for those NS shares placed in a voting trust, their value could plummet sharply should the STB subsequently deny the merger. A dissolution of the voting trust would follow, requiring sale by CP of the NS shares on the open market at whatever price is offered. CP shareholders could end up considerably poorer.
...
If history is a guide, and the CP-NS management swap occurs, Harrison will attempt to turn NS into a scheduled railroad, substituting high hourly pay for existing fixed trip-rates and guaranteeing train crews more predictable days off and starting times. Road and yard distinctions, as well as other costly work rules, would be eliminated and the work force trimmed significantly through attrition. Such a bundle of changes are intended to put productivity improvements on steroids, while annual wages could climb by as much as $30,000 in order to coax labor-contract changes.
...
For all of Harrison’s declarations of NS shortcomings, NS is the only major railroad that consistently has been found by the STB to generate revenue equaling or exceeding its annual cost of capital; and no railroad in modern times has posted a consistently better safety record. ...
...
The STB seeks to assure that, going forward, it does not act as an enabler of financial risk compromising CP’s ability to fund future capital investments and normalized maintenance for itself, or for its U.S. subsidiaries—Dakota, Minnesota & Eastern, Delaware & Hudson and Soo Line.

Comes now the more problematic hitch. The STB’s voting trust procedures require independence in the operation of the railroad held in trust. If the Harrison-intended management swap, perhaps essential to protecting the share value of NS should a merger be rejected by regulators, is viewed as jiggery-pokery by the STB—an attempt to circumvent required NS operational independence—voting trust approval could be in deep doo-doo.
...

Did my best to summarize this lengthy post with what I felt was most relevant to our discussions and to not repost the entire thing; I'd suggest just reading the whole thing to actually get something more coherent. Underlining added for emphasis.

mtuandrew wrote:If I were at CP, I'd be looking to purchase NS's trackage rights and CSX's ownership in the ex-Michigan Central. Even if they EDIT: route most trains over NS trackage Water Level/Wabash, it's worth having a "home" route, especially one with continual state investment.

Would this route be through Elkhart? Not sure NS would want to sell this line to CP.

Gilbert B Norman wrote:Last time I check, The Harbor is owned 49% SOO, 25.5% NS. 25.5% CSX. SOO (CP in the US) acquired their share when they bought the MILW lines from the Estate. The 51% NYC/Conrail interest was divided equally under the Breakup.

In short, Yager's got it right now.

Why The Harbor was not included in Shared Assets escapes me, but that water has long since flowed under the bridge.

CP management did not realize how much of an issue crossing Chicago would be for the railroad. If so, they might have been more proactive during the Conrail Breakup to acquire the necessary lines, e.g. IHB and Michigan line that would enhance their own system.

CPF363 wrote:

mtuandrew wrote:If I were at CP, I'd be looking to purchase NS's trackage rights and CSX's ownership in the ex-Michigan Central. Even if they EDIT: route most trains over NS trackage Water Level/Wabash, it's worth having a "home" route, especially one with continual state investment.

Would this route be through Elkhart? Not sure NS would want to sell this line to CP.

I believe the "Water Level" is the line through Elkhart (NS Chicago Line) and the Wabash in this case is the line from Detroit to Butler (Detroit District Milan to Montpelier, Huntington District Montpelier to Peru after passing through Butler). NS uses these two lines to run trains between Detroit and Chicago.

If I understand correctly, the Michigan Central line is the line Amtrak uses between Detroit and Porter ... owned by Amtrak between Porter and Kalamazoo and owned by the state of Michigan between Kalamazoo and Detroit. I believe mtuandrew is suggesting CP buy the rights to use the line Amtrak's line as the "home" route but route most of their trains over the NS owned route.

The "meltdowns" of merged RR's,such as happened with UP after the SP and CNW were added,NS and CSX
are still "recovering" from the CR split even now,will be brought up by the STB and by anybody against CP's
Hostile Takeover bid.
The way EHH is acting now makes Rupert Murdock and Mr Trump seem like saints.

Does this proposal have any traction? I'm not seeing much on the news networks or financial channels about it. I do hope it dries up...

justalurker66 wrote:I believe the "Water Level" is the line through Elkhart (NS Chicago Line) and the Wabash in this case is the line from Detroit to Butler (Detroit District Milan to Montpelier, Huntington District Montpelier to Peru after passing through Butler). NS uses these two lines to run trains between Detroit and Chicago.

If I understand correctly, the Michigan Central line is the line Amtrak uses between Detroit and Porter ... owned by Amtrak between Porter and Kalamazoo and owned by the state of Michigan between Kalamazoo and Detroit. I believe mtuandrew is suggesting CP buy the rights to use the line Amtrak's line as the "home" route but route most of their trains over the NS owned route.

Exactly right on both counts. I also suggest that CP either purchase, or have the Indiana Harbor Belt purchase, the CSX-owned Michigan Central line from Porter to Gibson Yard. It's a slow route now, but a valuable safety valve for Chicago traffic, and it is a direct connection to the IHB (which CP owns a great deal of.)

mtuandrew wrote:I also suggest that CP either purchase, or have the Indiana Harbor Belt purchase, the CSX-owned Michigan Central line from Porter to Gibson Yard.

The Porter Branch is becoming more important, with a new connection in place at Toleston to connect to CN Kirk Yard (via NS and CN owned track) and restoration of the Penn Central to connect CSX Toleston to the CSX line to the north and NS's Chicago line. I would not expect CSX to let that go.

justalurker: Ah, too bad, I thought that was a clever idea to have IHB take over the line. Guess CP will just have to purchase, merge with, or be purchased by either CSXT or NS to solve its east-of-Chicago quandary.