CSX Acquisition of Pan Am Railways

[newpylong]

No they cannot, any customer from RJ in the west to Willowa East in the east is on PAS and is a PAS customer. Two completely different waybills. The exception would be if Nortons in Worcester ever got service again, PAR owns the Worcester Main. This is why I said the Ayer area could get tricky of the RR continues to be split there without a common carrier.

As far as CSXT, the only thing they could ask for is assured access to INTERCHANGE with whoever owns East of Ayer like PAR doee right now. Just because they are the originating carrier for carloads doesn't mean they can dictate what happens on the terminating side. The customer could elect to source loads elsewhere.

[CN9634]

Whirl considering the possible interest of NS I found myself wondering how much of CN's traffic is in coal.

I found some reporting from two years ago showing a couple of weeks in February where the mix was about 10% coal and coke and 90% everything else.

Norfolk Southern from the same source (Market Realist) and timeframe (February 2018) was 30% coal and coke and 70% everything else.

June 2020 Cash on Hand for CNI was CAD $375M

June 2020 Cash on Hand for NSC was USD $1.14B

CNI has about 22K employees and NSC has 24K.

Much to my surprise in spite of the far higher market capitalization Norfolk Southern is the more profitable company and is slightly larger.

Canadian National's offer seems likely to be an all stock purchase. Norfolk Southern on the other hand could potentially purchase as a cash buyer. If Pan Am chose to do owner financing and spread out some lease payments that would probably work even better and might net them a higher price.

I am assuming that Pan Am owns their assets outright with the exception of leased power and that they have little to no debt against their real estate which would prevent owner financing.




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Not to derail this topic but curious where you got your figures? I'm showing market cap of NS at $49B and CN $70B (On the NYQ)

Relative to coal data, 2018 is far too stale considering we are 2/3 through 2020 and that is a highly volatile commodity.

Not sure where you got on the kick of stock offer, I think either company have enough financial leverage either cash or financial instruments to make a purchase if they wanted.

In any case I'd say this topic has been speculated to death, but my understanding is we should have an idea relatively soon on who has agreed to purchase the RR>

[Ken Rice]

I believe the dividing point betwen PAS and PAR is CPF312, which is visible from Great Rd in Littleton (rt 119), and is at the east end of the double track, putting the flour mill, Catania, auto facility, etc. all in PAS territory.
I remember hearing that there was a bit of extra complication setting up with AEI readers at that point because sometimes switching some of those industries ends up pulling cars past that point and back again.

[Trinnau]

CPF-312 is indeed the dividing point. But PAR has rights from CPF-312 through the Hill Yard to the Worcester Main (which is PAR) without owing PAS anything. This was a condition of the PAS deal and still gives PAR a direct interchange with CSX that is not within NS's control. Also makes sense from a STB/competition viewpoint. If the system was split and NS wholly picked up PAS those rights should transfer to whoever picked up PAR.

[johnpbarlow]

I guess what I remain confused about re: current PAR v. PAS ops around Ayer is that the CSX 426/Q427 trains that run on PAR's Worcester Main as local turn B728 apparently haul C&D cars that go to/from Devens Recycling on a spur at Hill Yard. I'm assuming that this spur is PAS owned but perhaps I'm wrong? If this spur is PAS track, then is it the case that PAR is providing direct service to customer Devens Recycling via trackage rights on PAS at Hill Yard? And perhaps the same question applies to the other carload customers having Hill Yard spurs?

Re: the hypothetical of NS becoming 100% owner of PAS, CSX would now interchange with NS at RJ (and Springfield, too) and, as far as I know, there are no "rights" to convey to anyone to ensure that CSX continues to enjoy its current service and rates to customers (eg, LPG transload sites) and interchange partners (eg, VRS at Hoosic Jct) along the former PAS after NS becomes owner. I think CSX and NS would have to negotiate new Ts & Cs for former PAS customer service.

[newpylong]

Hill Yard customers are PAS customers, but keep in mind the ST is the carrier for both PAS and PAR so PAR by definition is providing the service throughout the entire system. At the simplest level, the ONLY difference is billing and track condition (though the West End of PAS has gone down the shitter).

Correct, the STB likely would not entertain any complaints from CSXT about losing specific customers due to a sale. For example, assume a customer somewhere in Eastern MA currently gets their cars from CSXT (due to price.) CSXT can't complain that they could potentially lose the business if someone else buys the RR, because the customer still has other option(s). Now say the railroad is split at Ayer further with some other shortline owning east of there and NS owning west of there entirely. CSXT (and the shortline) would now have a valid claim that they must be allowed to interchange. So to your example, the VRS and CSXT absolutely could request some type of access/rights to Hoosick Junction, that is VRS's only real way to get to CSXT.

It's about as confusing as the whole BM/MEC > GTI > ST > GRS/PAR deal and how they all relate and are intertwined.

[johnpbarlow]

Sunday afternoon day dreaming:
P&W has Overhead Rights over Metro North/Amtrak between New Haven and NY&A on Long Island - does that mean P&W can move general freight non-stop between New Haven and LI? Or is P&W is only entitled to move stone to LI? I'm wondering if P&W/G&W were to purchase PAR, could it theoretically move tissue paper, sheet rock, lumber, Poland Springs water, and containers, from Maine/New Brunswick to NY&A on LI and, via NY/NJ Rail car float, to New Jersey...

[BandA]

I don't understand this interchange thing; CSXT presently has trackage rights to ayer, right? From there they can transfer (i.e. "interchange") to PAR or PAS at will? How would that change in a sale?

[BandA]

Mr. Mellon has owned the rr for a long time, and he is old. The economy is incredibly uncertain (when will stimulus payments end, will the trade war with China heat up, how bad is the damage to the economy after everything reopens). It is unclear if fresh capital needs to be invested into the Hoosac Tunnel or other projects. So Mellon wants out, now. Does he want cash or stock? I'm guessing cash but he probably wants the highest price and doesn't like paying capital gains tax either. So maybe takes stock & sets up a systematic plan to sell over time.

NS probably doesn't want the uncertainty of a new partner for PAS, so I am betting they want to buy the whole thing then parcel out what they don't want or STB says they have to.

[Gilbert B Norman]

Mr. B&A, I would think that NS could acquire all of the Guilford Lines without any concerns regarding competitive access from the Surf Board - foreign road or industry. Now, if NS tried to close any existing interchanges, oh say with CSX at Ayer or Springfield, CP at M'ville, CN and P&W at ?, now we are talking a new ballgame.

I don't think that either GTC (CN in the US) or SOO (CP in the US) can make that claim.

Now so far as "paying for it", all three potential railroad "suitors" are publicly traded. Just think of their stock as a "Bitcoin". Market price ($) X Shares(#) is what you paid for GTC, and, very simplified, is your cost basis.

[newpylong]

I don't understand this interchange thing; CSXT presently has trackage rights to ayer, right? From there they can transfer (i.e. "interchange") to PAR or PAS at will? How would that change in a sale?

See attachment. Do you see the potential issue now? If PAR goes away and the Blue (PAS) and Purple (PAR) become entirely separate railroads and carriers. As mentioned, the current arrangement where PAR can cross PAS to access the Worcester Main (and CSXT) was part of the STB deal and is simplified because it's the same carrier. All we are saying is it is a high likelihood these rights would need to pass to whoever gets PAR if NS buys out all of PAS, etc. It's that simple.

[Cosakita18]

A lot of assumptions and other factors for this to be optimal... but What if CSX were to just purchase the Worcester main to Ayer? That could make Ayer a triangular interchange point between NS, CSX and Whoever owns D1&2.

[Gilbert B Norman]

Mr. Newpy, could you decode your colors on the map, i.e. which road owns what?

Also, of great interest is who would need be granted rights to wherever in the case of a sale to any of the three Class I "suitors"?

As example, I would think that if NS acquires the Pan Am properties, no further access need be given to any further parties, as the competition presently in place would not be impaired.

But of course, I defer to you; as it would appear you work for the outfit (which "Union Busting" piece I know not).

[gokeefe]

Not to derail this topic but curious where you got your figures? I'm showing market cap of NS at $49B and CN $70B (On the NYQ)

Straight Google entry of the stock ticker symbol which gives that days results (probably close to live but not sure).

Relative to coal data, 2018 is far too stale considering we are 2/3 through 2020 and that is a highly volatile commodity.

Agreed. Coal is extremely volatile. Figures on traffic share were for an approximate comparison to exposure of that market. NS is of course far more coal dependent than CN and I doubt that has changed.

Not sure where you got on the kick of stock offer, I think either company have enough financial leverage either cash or financial instruments to make a purchase if they wanted.

Your point speaks strongly to "Why equity?". The buyer can preserve their cash position and not have to take on new debt if they use stock. CN's liquidity pool in particular is so deep that it would easily absorb $1B in new shares with minimal dilution. NS has a stronger P/E which also implies less dilution to EPS. Stock is very close to "free money" that the company can print itself and take a minimal penalty on especially when there are significant new tangible assets acquired through the sale. Mr. Norman points out much the same.

There are also some potentially significant tax implications for the seller if they take equity instead of cash.

In any case I'd say this topic has been speculated to death, but my understanding is we should have an idea relatively soon on who has agreed to purchase the RR>

That's good to hear. The less this uncertainty lingers the better.


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[fromway]

Interesting talk in the CN portion of Railroad.net. They are trying to sell ALL of the US trackage situated in the upper mid-west. The speculations is that they are trying to accumulate cash for a future purchase. The PAR situation was mentioned in the discussion. Who knows what is going on. Only time will tell.