In my speculation the thought is that CSX has a better route to Detroit to the south, BNSF would want a contiguous connection to their new track in Ontario, and paying for that would offset a small amount of the CSX purchase of “CP West”.
All just speculating to start a conversation and see what other thoughts are out there.
Right now Warren Buffett is sitting on billions in cash, and while a whole railroad would eat up a lot of that, maybe half would be doable. BNSF running intermodal from Mexico to Toronto and Montreal would sort of be in their wheelhouse. They could call it the Canamex Transcon or something like that.
CP/UP - Chicago-Clinton and CP Clinton-KC provides a more direct Chicago-KC line than either has alone, not counting UP’s trackage rights on BNSF, which is only for intermodal and automotive. This extends the Golden State Route to Chicago, where RI had it in the first place! Also, traffic coming out of Western Canada or the Dakotas can avoid Chicago congestion by taking CP to Clinton and then UP to St Louis for CSX or NS interchange. The direction reversal at Clinton would not be a major issue with distributed power. However, there is some overlap in the Midwest that would have to be addressed by allowing a competitor in.
CP/NS - Traffic between Western Canada and Southeastern US could avoid Chicago by using CP from St Paul to Davenport and NS’ rights on Iowa Interstate to Peoria or the south side of Chicagoland. Maybe this doesn’t avoid Chicago completely, but using IAIS avoids a long slow trip down from Bensenville.
I don’t see a lot of overlap between CP and NS or CSX. However, they would have to show that competition is increased so concessions to other RRs would be necessary.
ETCanadian National Railway Company (CNI)By: Carl Surran, SA News Editor10 Comments Canadian National Railway’s (NYSE:CNI) takeover bid for Kansas City Southern (NYSE:KSU) appears to pose greater risks to competition than a rival deal with Canadian Pacific Railway (NYSE:CP), the U.S. Department of Justice says in a filing with the U.S. Surface Transportation Board.
“A CN-KCS transaction poses additional dangers to competition stemming from the potential elimination of direct, ‘parallel’ competition on routes served by both railroads, for example between Baton Rouge and New Orleans,” the DoJ says.
CP Rail says it “concurs with the DoJ’s objection to CN’s application for proposed use of a voting trust on the grounds that a CN merger with KCS would pose greater risks to competition.”
“The DoJ’s position is consistent with CP’s assessment that CN’s proposal is illusory and offers unattainable value to KCS shareholders.”
Kansas City Southern yesterday accepted CN Rail’s $33.6B takeover offer as “superior” to CP Rail’s previous $29B deal.
Wow, looks like CP will get that $700 million and now possibly KCS.
I come down in favor of the CN. As a former ICG marketing type I know the only significant competitive overlap for a CN/KCS combination is the 65 miles between Baton Rouge and New Orleans.
On that 65 miles duplicate lines of both railroads serve major shippers jointly. These shippers are refineries and petrochemical plants. KCS and CN compete for this business. Combining KCS with CN would eliminate this competition.
CN is aware of this and is willing to mitigate the issue by divesting the KCS line between Baton Rouge and New Orleans if need be. (See Bill Stephens’ very good article on the merger in July Trains.)
Aside from that, what’s wrong with KCS accepting CN’s superior bid? The US Department of Justice doesn’t know a thing about transportation in general or railroading in particular.
The former merger rules implemented as part of The Staggers Act rail regulation reform were written to promote mergers. At the time there were many failing railroads and the idea was to allow them to merge to get economies of scale benefits and stay in business as a transportation option. Several dozen Class I railroads merged down to 7 by about 1996.
In 1999 BNSF and CN proposed a merger. It likely would have triggered the dominos down to two systems across North America with a potential long term risk of many captive shipper situations developing.
At that time the STB put a hold on any merger application reviews to write new merger rules to ensure that future mergers would enhance competition.
The new rules applied to all Class I railroads except KCS, which was much smaller at the time and so was grandfathered in under the old rules.
While the STB technically did not rule against the BNSF-CN merger, when the new rules were published, BNSF and CN pulled their merger application and the seven-Class-I status quo was maintained.
Looks like CP will get a cool $700 million and KCS…
Kansas City Southern falls after regulator says merger waiver provision does not apply to Canadian National offer May 17, 2021 2:46 PM ETKansas City Southern (KSU)By: Clark Schultz, SA News Editor6 Comments Kansas City Southern (KSU -2.8%) is having a volatile session after the Surface Transportation Board said its merger rules apply to the company’s proposed combination with Canadian National Railway (CNI +1.7%). Canadian Pacific Railway (CP -1.6%) had landed a petition for its deal with KSU to be exempt from the STB merger rules, however the agency determined that the application of the waiver provision to the CN-Kansas City transaction is not warranted. Late on Friday, the DOJ said the CN Rail bid for Kansas City Southern poses greater risk to competition than the CP deal. Analysts expects many swings back and forth for KSU, CNI and CP as the merger drama plays on. Shares of Kansas City Southern are still up more than 50% YTD on optimism that a merger deal of some sort will make it to the finish line.
Agree that CN is not going to get KCS even with a superior bid. CP might sweeten it’s bid but if I were CP I would stand with the current offer and not increase it. I think all along CN’s strategy was to try and load up CP with debt rather than possess KCS. Pretty confident CP will get KCS at this point and CN will be left with it’s current system and no concessions from CP.
Saw the STB applying the ‘Big Merger’ to CN when the initially made thier ‘bid’. The CP-KCS deal leaves the apperarance of competition N-S in middle America. CN-KCS does not.
This would explain CN going early to ‘public’ explanation of its perceived value… where this has its effect will be in the proxy fight between good fit and money. That’s too much money to ignore (which I think is why KCS formally considered CN’s bid).
As with Hunter’s buy-out at CSX, it remains to be seen what the stockholders vote to ‘assume’. And as with most plutocratic decision-making about governance, they deserve the compensation they receive and the kind of railroad operation governing their future “wealth”
BaltACD, I didn’t say CP doesn’t want to access those areas. Of course they do.
What I was saying in a short fashion is that because under the more stringent merger rules, which require enhanced competition, CN could give CP its own end to end route from the end of CP track in Kansas City all the way to New Orleans, through Baton Rouge and the refining-chemical area.
That would give CP the original KCS which is duplicative to the CN route from the Midwest to NOLA.
Whether that would be enough for the STB to approve the CN bid remains to be seen. Maybe they would require more CP trackage rights to other places.
But for the CN bid to “work” for CN, they need all the other track besides the original KCS more than they need the original KCS.
Note, I am not taking sides and rooting for one road over the other - just making some observations, is all. It is fascinating what might come out of this merger battle when the dust settles.
Going back to the OP’s question… i.e. what would happen to the CP in the event of a CN-KCS merger? Short answer… it would remain a viable east west carrier with ports on both the east and west coasts. sure, it would be left as the smallest class 1 by far, but I don’t believe that would necessitate having to merge with anyone. So they’re smaller… so what. They’re still big enough to tap into all the economies of scale that the larger systems do, and a smaller railway has the advantage of being more manageable. And CP does have natural competitive advantages… it is the shortest route from Western Canada to the central US…and its shorter to the East coast than its rival CN. CP would have no trouble surviving among its much larger peers in the same way that KCS has thrived on its own as the dwarf among giants all these years.
CP wants to get to the nearshoring growth in Mexico.
CN wants to get to the nearshoring growth in Mexico.
CP needs all of KCS to get to Mexico.
CN needs only part of KCS to get to Mexico.
CN can get there from the CN mainline in Jackson, MS to Shreveport, LA and thence south from there.
CN does not need the original KCS from KC to get to Mexico.
Hence, perhaps a spinoff of the KCS from KC to Shreveport and the KCS from Shreveport to NOLA to eliminate all the 2-to-1 shipper issues from Baton Rouge to NOLA could be part of their strategy.
CN did actually ask the STB to use the new rules on their proposed combination. So that was either bluster (could very well be) or they just might actually have a plan.
A large Investment/Hedge Fund with significant holdings in both CN and CP has sent a letter to CN’s CEO that his bid for KCS is a mistake and that the STB has signalled that they are likely to reject CN’s acquisition of KCS. They also stated that if the Voting Trust is approved and the deal is denied they anticipate that CN would take a $15 to $18 billion dollar loss. If that happens they will demand an immediate resignation of CN’s CEO.