by Engineer Spike
Supposedly CP offered to merge with CSX, but CSX turned them down. I wonder if CP and or Jackman can buy enough shares to force it?
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It could also provide a big victory for the activist investor William A. Ackman, who joined Canadian Pacific’s board after a contentious proxy fight and whose hedge fund, Pershing Square Capital Management, has a big stake in the company.Since BNSF/CN went nowhere, let's examine how this "Chessie and Beaver" proposal differs. The main difference I see is that BNSF/CN would have eliminated one competitive Transcon route. Agricultural shippers in the Dakota presently have competitive routings, of sorts. If SOO (CP) is not providing adequate service, then there is BNSF. A merger of those two would have left shippers without the competitive routings, again of sorts. This is not an issue with a CP/CSX combination.
Canadian Pacific, with a market value of about $32.5 billion, has rail lines that stretch across Canada and into the United States. CSX has a market value of about $30 billion and controls a network of lines throughout the Eastern United States.
With minimal geographic overlap, the two companies would have a huge combined footprint. But there are potential obstacles to a deal
You are entitled to believe that mergers in the railroad industry are driven by broad economic forces. I believe they are driven by the ambitions of men. The news today that Canadian Pacific has approached CSX regarding a merger appears to bear me out.I can't say I totally "buy" Mr. Frailey's thoughts that mergers are largely brought about by greed, ego, and reenacting playground games of "I'm bigger than you are". Not all railroad mergers have been flops. It would be hard to call that of Conrail such, or for that matter, BNSF, but on the other hand within transportation, I think a few airline managers have quickly learned there is more to a merger than painting airplanes.
A young chief executive of a successful business is the last person you want to ask to sell. Why should the younger CEO give up the possibility of years of accomplishment and executive bonuses? The answer is that he won't unless backed against a wall. Canadian Pacific's president and soon to be CEO, Keith Creel, is in his mid 40s. His boss, chairman Hunter Harrison, has said for years that additional mergers are both inevitable and good for the railroad industry, in that they would break down the east-west wall that roughly follows the Mississippi River. By all accounts, Creel is eager to make a name outside the shadow of his mentor, Harrison. So CP's approach to CSX makes perfect sense.
But look who else is primed to act. At BNSF Railway, CEO Carl Ice and executive chairman Matt Rose are in their 50s. They are not directly affected by Wall Street's short-term outlook, either, being owned by conglomerate Berkshire Hathaway. Plus, they have Berkshire's huge trove of cash and sterling credit rating at their backs. And at Canadian National is Claude Mongeau, barely turned age 50 and a veteran at buying and absorbing regional railroads (Wisconsin Central, Elgin Joliet & Eastern, British Columbia Rail, among a host of others). Together, these railroads all have reasons to be buyers because they are led by men who feel they have a future before them.
Now look at the possible sellers. Michael Ward at CSX, Jack Koreleski at Union Pacific, Wick Moorman at Norfolk Southern, and David Starling at Kansas City Southern are all one to four years from the normal retirement age of 65. Each might be willing to listen to an offer that makes sense to their shareholders and makes sense as a future business combination. Most if not all of these CEOs have heirs apparent--Wick has Jim Squires, Michael has Oscar Munoz and Jack has Lance Fritz, for example--but the reality is that boards of directors listen to who has the top job now, not those who seek it later.
E Hunter Harrison is the only railroad boss in favor of consolidation.All told, in order to win US regulatory approval, the burden will be on the proponents to establish that shipper, and by succession public, benefits will be attained from the combination. "Talk the talk" with regards to Chicago interchange congestion will only go so far. Even though both "Canadians" control two of the Chicago "Belts" (CN The "J"; CP -75% - "Harbor"), there have been reports that interchange time is no better over those routings than other. I will not easily forget my first railroad ride to Chicago during April 1961 aboard B&O Capitol Limited and observing the myriad of "diamonds" over which the train traveled accessing Chicago. Even then, I wondered how is traffic efficiently moved to and through "the railroad capital". With railroads handling (a guess) three times the volume of traffic today, the problems are simply "doubled vulnerable in No-Trump". Any further combinations within the railroad systems will simply have to establish - and deliver - public benefit; otherwise "DOA".
And while CSX didn’t accept CP Chief Executive Hunter Harrison ’s approach last week, that is unlikely to be the last word.
People familiar with the talks between CP and CSX, reported Sunday by The Wall Street Journal, said discussions are still possible between the two.
“This conversation has been going on in every board room in the rail business,” one of the people said. “Everybody has been running numbers. We’re dealing with a rail network that’s not boundless in its infrastructure. You can take an existing infrastructure and make it work better.”
While Mr. Harrison favors railroad consolidation, many competitors, shippers and analysts worry that mergers could aggravate congestion delays and raise costs. Some shippers blame previous mergers for continued traffic problems, which have been exacerbated by growing amounts of crude oil being shipped by rail.
“I think it’s a common belief that now would not be a good time,” said a top executive at a major railroad, “because of the regulatory change that would accompany it and the upheaval it would cause the industry.”
Mr. Harrison—who also has run CP’s bigger rival, Canadian National Railway Co. —believes consolidation would help untangle and streamline the rail infrastructure. Were CP and CSX to combine, that would, for example, allow a single railroad to deliver coal from mine to utility, reducing handoffs and inefficiency.
Chicago is likely central to Mr. Harrison, who was brought in by activist investor William Ackman to run CP after a 2012 proxy fight. By combining the CSX and CP rail networks, trains would be able to move around the congested Midwestern gateway without the need to hand trains over to another carrier. That takes anywhere between 15 to 42 hours, according to recent data from the Association of American Railroads
Gilbert B Norman wrote:CP does not control the "Harbor", no one does. CP owns 49% , NS and CSX own 25.5% each. There is some speculation that CP will trade the Southern portion of the D&H (plus possibly some cash) for NS' share of the Harbor, and it is also speculated that CSX would sell its portion of the Harbor to make CP go away, CSX would then have some extra cash to make improvements on it's railroad.
All told, in order to win US regulatory approval, the burden will be on the proponents to establish that shipper, and by succession public, benefits will be attained from the combination. "Talk the talk" with regards to Chicago interchange congestion will only go so far. Even though both "Canadians" control two of the Chicago "Belts" (CN The "J"; CP -75% - "Harbor"), there have been reports that interchange time is no better over those routings than other. I will not easily forget my first railroad ride to Chicago during April 1961 aboard B&O Capitol Limited and observing the myriad of "diamonds" over which the train traveled accessing Chicago. Even then, I wondered how is traffic efficiently moved to and through "the railroad capital". With railroads handling (a guess) three times the volume of traffic today, the problems are simply "doubled vulnerable in No-Trump". Any further combinations within the railroad systems will simply have to establish - and deliver - public benefit; otherwise "DOA".
Gilbert B Norman wrote:You raise a good point, Mr. JayBee; I was jumping the gun and presuming that if this merger is approved, CSX-CP would have majority ownership of The Harbor.But CSX already owns BOCT. Isn't that a major conflict of interest to own two of the three Chicago belts? I'd look to NS grabbing a larger share of the Harbor if a merger goes through.
mtuandrew wrote:But remember, we are talking about the sale of the D&H south of Schenectady with CP retaining the north end for oil shipments into Albany. From a purely operational standpoint, does CP still want/need the southern part after ceasing service to Philly? I guess there could be some value in running down the R&N/NS to Allentown but is that worth the cost of ownership of the entire southern portion to Sunbury?Gilbert B Norman wrote:You raise a good point, Mr. JayBee; I was jumping the gun and presuming that if this merger is approved, CSX-CP would have majority ownership of The Harbor.But CSX already owns BOCT. Isn't that a major conflict of interest to own two of the three Chicago belts? I'd look to NS grabbing a larger share of the Harbor if a merger goes through.
Also, I will be interested to see if CP actually sells the D&H (to the NS or to anyone else) now that CSX said "no."
mtuandrew wrote: But CSX already owns BOCT. Isn't that a major conflict of interest to own two of the three Chicago belts? I'd look to NS grabbing a larger share of the Harbor if a merger goes through.B&OCT is not a full Belt Railroad, it has Trackage Rights over the Harbor to reach the UP at Proviso and the CP at Bensenville.
Also, I will be interested to see if CP actually sells the D&H (to the NS or to anyone else) now that CSX said "no."
JayBee wrote:Ah, I'd missed that CP didn't have a direct connection to BOCT. I thought they connected at Western Avenue, but that's a UP/NS line going south, not CSX coming north.mtuandrew wrote: But CSX already owns BOCT. Isn't that a major conflict of interest to own two of the three Chicago belts? I'd look to NS grabbing a larger share of the Harbor if a merger goes through.B&OCT is not a full Belt Railroad, it has Trackage Rights over the Harbor to reach the UP at Proviso and the CP at Bensenville.
Also, I will be interested to see if CP actually sells the D&H (to the NS or to anyone else) now that CSX said "no."
Remember that Conrail also said "No" to NS twice before the Railroad was split between NS and CSX.
The consolidated financial statements and supporting schedules included in this annual report include Soo Line Corporation (SOO)I am completely mistaken if I lead anyone to believe that all CP/SOO properties had been merged into one, for clearly they have not. Those actually merged into the Soo Line Railroad include the Minneapolis, St Paul,& Sault Saint Marie, the Wisconsin Central (first incarnation), the Duluth, South Shore, & Atlantic (less of course, those lines that were acquired by the second incarnation of the Wisconsin Central), and of course "my" Chicago, Milwaukee, St. Paul, & Pacific.
and the following subsidiaries:
Soo Line Railroad Company (SLRR)
Soo System Radio Communications Corporation
Dakota, Minnesota & Eastern Railroad Corporation (DME)
Wyoming Dakota Railroad Properties, Inc.
Soo Line Holding Company
Delaware and Hudson Railway Company, Inc. (DH)
Wilkes Barre Connecting Railroad Company
Northern Coal and Iron Company
Albany & Vermont Railroad Company
Saratoga & Schenectady Railroad Company
CPR Locomotive Equity Company
Soo Green Holding LLC
Canadian Pacific PTC LLC