I thought it might be useful to start a new thread for discussing developments in the transaction, that are currently scattered over several threads. It will probably be a dismal failure but nothing ventured, nothing gained.
The STB today (1-16-09) issued a unanimous decision denying all of the petitions for a stay of the transaction that Barrington and others had previously filed (available on the Board’s website). That means that, as far as STB is concerned, the transaction can close on January 23.
What will happen next is that the parties who sought the STB stay will go to a Federal Court of Appeals (probably the court for District of Columbia circuit) and ask the court to stay the STB decision pending judicial review. The opponents had to request STB for a stay before they could request one from the court.
The court will have to issue a “stay” decision by January 23. This will be a key decision and bears watching. If the court were to issue a “stay”, it would mean that CN couldn’t close the transaction until the court’s judicial review is completed, which could be a year or more from now. That could very well kill the transaction, if EJ&E’s current owners decide to pull the plug. Stay tuned.
According to multiple news reports (including a press conference with CN President Hunter Harrision), the D. C. Circuit Court of Appeals refused on Thursday (1/22) to stay the CN-EJE transaction. That gives CN and EJE a green light to close the transaction, conceivably as early as today. I’m sure that CN wants to do so as quickly as it can, but they may have some issue to work out with EJE, given the passage of the reported December 31 closing deadline.
According to the shareholder conference call last night the deal is a go; however, it will be a three year ramp up given the infrastructure improvments required.
If they said last night that the transaction is a “go”, look for it to close today or Monday. R.I.P. EJ&E.
CN also mentioned the “ramp up” period a couple of weeks ago in an STB filing (opposing the requests for a stay that had been filed with the Board). They may have mentioned it earlier in their application or environmental materials, but there are limits to my curiousity.
AT CN sanity prevails and is profitable… the purchase of the EJ&E is a smart move as is the company’s recent repurchase of Quebec Railway lines it has spun off years ago. All is not perfect at CN…they have some work to do to address moral and legitimate concerns of labor, but overall they are a well run and well oiled machine.
Well the Mayor of Barrington cired some pretty big corcodile tears on the editorial page of the Chicago Trib yesterday 1/29 (Wah! it isn;lt fair. Wah. Wah. Wah.) and New Lenox is joining them in some kind of a legal action to get CN to put in overpasses for every crossing in town and some that might be needed in the future.
Overpasses might not be such a bad idea in the long run anyway given the volumes they’re talking about and in order to realize the full potential of DP. My one big concern with CN right now is EH Hunter’s succession plan…not much is known about it at the moment…He is the star in CN’s managment firmament whether you like him or not…and his boots will be hard to fill. Furthermore, his successor may be coming in at the depths of this recession/depression…not necessarily the best time to make changes at the top.
Good point, and generally a valid concern, but now: In view of what’s happened to the stock market, credit availability, and the economy in general in the 15-16 months or so since this deal was put together, the EJ&E’s owners ought to be darn glad that CN still wants to and is capable of going ahead with the deal at the agreed-upon price, and isn’t looking for a concession in that regard, despite the delays and resulting probable technical expiration of the agreeement of sale/ purchase. Where is EJ&E going to find anyone else who would want to and can pay $300 M for it ?
More to the point, if the EJ&E’s owners now say to CN, “Sorry, time’s up ! No deal !” and then refuse to go through with the sale for that reason - picture them then explaining to their stockholders why they turned down a sure-fire $300 M sale for . . . what ? . . . instead. Compare with Yahoo! not selling to MicroSoft - real smart bargaining there, right ? Any EJ&E official who engages in that kind of brinksmanship had better be prepared to: A) explain how his actions are consistent with his fiduciary duty to the shareholders to maximize their stock’s values; B) when that explanation falls on deaf ears, to reimburse the shareholders for their losses out of his own personal assets; and then C) find new employment - ask Jerry Yang (former Yahoo! CEO) about that. That’s not going to happen here, so the deal will go ahead and close - in my opinion, anyway.
No, I don’t know - and haven’t done any research - if it is true or not, either way. It’s just a supposition on my part - probably reasonable, though, since you’re thinking the same way, eh ?
But if the EJ&E’s lawyers did their jobs right, CN shouldn’t have much “wiggle room” here. In technical terms, it would be something like “the failure or non-occurrence of a required or intended condition precedent” of some kind - such as the STB approval by an earlier date. If so, that not happening could now serve as a trigger to release CN from the binding contractual requirement to close, and so theoretically give CN the option of waiving (or not) that failure and non-occurrence. But I doubt if EJ&E would have let that occur, or that CN would risk losing the deal that way. Anyway, we’ll soon see how it turns out.
I also don’t think that CN is asking for a price concession although, of course, we don’t know what CN and EJ&E are talking about right now. Your analysis rings true. I’m not aware of anything that gives CN the option of pulling the pin. Depending who you believe, EJ&E might have such an option due to the failure to close by December 31 (or maybe not, since STB approved the tranaction by this date), but CN does not. Further, I don’t think CN is this short sighted. The EJ&E transaction is a long term, strategic transaction. Now that they finally have the OK to go ahead with it, I doubt if they are going to risk the long term strategic value just to get a somewhat better price today. Further, a significant change in the terms of the transaction could give the opponents an argument that the STB proceeding should be reopened, which is the last thing CN should want. However, having said all of this, I note that the transaction apparently didn’t close today.
One interesting piece of trivia; when this deal is completed, CN will have purchased the three largest of the historic U.S. Steel railroads (EJ&E, B&LE, DMIR).
It’s probably a done deal, except for the final paperwork. That said, it’s really curious that the transaction apparently didn’t close on Friday, January 23 (at least I haven’t been able to find any announcements that it did). A heavily contested transaction like this will almost always close at the earliest date that it can (the 23rd in this case), since any delay can create opportunities for opponents to make mischief. Perhaps it’s just a paperwork glitch and it will close on Monday. But, if it doesn’t close in the next few days, there could be something else going on.
One thing I’ve always thought was odd about this transaction was that CN and EJ&E didn’t close it into a voting trust a long time ago, particularly given CN’s frequently expressed concerns about the need for as closing (or at least an STB approval decision) by December 31. Voting trusts are very commonly used in STB merger proceedings and allow parties to close a deal before receiving STB approval. The way they work is that the money is exchanged, but the acquiring firm can’t actually exercise control over the other company (or the properties being acquired) until STB approves the transaction - it’s controlled by the trustees. If the transaction is approved, the trust is dissolved and the acquiring company assumes actual control (as in the UP/SP merger). If it is not approved, the acquired firm or property must be spun off (as in ATSF/SP merger). One possible reason is that CN didn’t want to pay for the property before it knew it could really do what it wanted to do with it. But, if that’s the case, why did CN request at one point that the Board approve the transaction subject to a condition prohibiting operating changes until the environmental review was completed, so that it could close before December 31? Had this occurrred (the STB didn’t go along), it would have
This has been one of the most interesting rail mergers for me personally for several reasons. The CN is a railroad I monitor daily, both financially and operationally (mainly thru scanner monitoring). Their operations into and out of Chicago are very interesting and complex, based on the other railroad’s issues and capacities. The EJE, while in my backyard, is a railroad of local interest.
The STB filings were very interesting to read, particularly the capacity and operations issues around the choke points. It remains to be seen how CN will handle several issues with this merger:
The operations problems around Joliet and West Chicago, particularly the Joliet area. How will they juggle the single track drawbridge, the coal traffic on the 6mph dragonfly branch, yard limits, and Metra crossing? That is one big bottleneck.
The integration of Kirk and Joliet Yards and the reduced use of Glenn and Markham will be a interesting operation change. I am very curious about the use of Kirk as a main Chicago terminal.
How will CN handle the current UP and BNSF trackage rights traffic? There is quite a bit of coal traffic moving. Is that handled as a trackage rights movement or does EJE (and soon CN) handle on a revenue basis? EJE seems to handle that traffic with their own power on certain moves. Will CN be motivated financially and legally to continue this arrangement, particularly on a short haul basis?
EJE runs a daily steel coil train from Kirk (USX Steel) to the NS at Van Loon. Obviously EJE/USX were motivated to run this train as it was USX originated steel. Will CN find it profitable to run this 15 mile train on a tight schedule to NS? There is a huge difference in operation philosophy when the customer owns the railroad vs owned by a class 1. Ditto th
From what a couple of CN employees told me that traverse to chicago every other day is that Kirk Yard is going to be the main yard in Chicago. Hawthorne Yard is already done (i was told by 2 employees), Glen yard would be closed, markham will be intermodal only, Schiller would be just about shut down.
The only question that they couldnt answer is if they went all the way down to Kirk Yard, where would the crew change be at? Fond du Lac would be shut down except for a few yard jobs. Point and FDL crews would be out of Neenah along with some blocking (as soon as they expand the yard)(italics:rumor been around for over a year). I dont see how they can go from Neenah to Kirk Yard in 12 hours,
I agree. No way they could make Neenah - Kirk legally. Right now there are “Eldson crews” which are used. These crews seem to be transfer type crews, taking trains that are low on time and moving them to the destination, usually another railroad, such as BNSF or UP.
Paul, do you have a listing of trains running over the WC, with origin/destinations? I could put together a list of the CN (ex GTW) trains. There are a couple which seem to run from GTW to WC, such as 357 and possibly 301 ( I havent heard it in a while).
CN seems to have dropped some trains, no doubt due to the economic slump. I saw an EB charging up the Valpo hill the other evening at 45mph or so. It was mostly loads…I counted only 44 cars. That is really rare for CN.
It will be interesting to see just how the operating plan will be implemented. CN has a a good amount of construction to do to allow efficient train movement betwee EJE rails and the other CN lines and it seems certain that the diversion from current routes will be a slow process.
Beyond that, to the best of my knowledge CN hasn’t put out any comments on how they might address choke points or the efficient capacity limits discussed in the EIS. Given that CN will have the facilities and rights-at least for now-to continue using existing routes, I wonder if the proposed operating plan over EJE lines will ever be fully implemented.