Mergers who would survive; who would not

Trains Magazine General Discussion
1

Fairly regularly, people complain about the effects of the last 20 or so years of mergers. I have even been known to do it myself every now and then. My complaint is there are not enough regional railroad spinoffs after mergers and the resulting conglomerate is too large to effectively fight off entrepy and manage itself effectively–I would have no problems with mergers if there were more effective regional spinoffs.

But anyway, just to show a balanced approach, I think we should reverse the question: which railroads would have survived had it not been for the mergers:

(1) Southern RR
(2) N&W RR
(3) Conrail
(4) L&N
(5) Seaboard RR
(6) C&O, B&O, and WM
(7) ICG
(8) Wisconsin Central
(9) UP
(10) Mopac
(11) Western Pacific
(12) Santa Fe
(13) Southern Pacific
(14) Frisco
(15) BN
(16) Chicago North Western
(17) CN
(18) SOO

Of course, survival is a relative term. I am convinced that at least 4 of these railroads would not have lived to see 2006 under their own flag. But, then again, I don’t see a lot of their track being pulled up in a bankruptcy liquidation.

Gabe

P.S. Because this is a complex question, I am posting another related thread–please read both if you are interested.

2

In the case of the UPRR/CNW you are aware that the UPRR was a large shareholder in the CN & W long before they merged? [:o)][:)][:p]

[quote]
Originally posted by gabe
[

3

Okay. Let me try:

(1) Southern RR - survived. The CNO&TP plus growth in the south should have been enough to keep going
(2) N&W RR - survived. COAL! plus Detroit
(3) Conrail - A close call, but having North Jersey Intermodal franchise + growth in intermodal might have been just enough
(4) L&N - survived, maybe in shrunken state - coal
(5) Seaboard RR - with the ACL, probably survived. w/o maybe not.
(6) C&O - with the B&O dead, w/o the B&O, maybe there is enough coal to balance out competitive disadvantage with N&W
(7) ICG - belly up
(8) Wisconsin Central - you mean the original SOO - probably belly up, or at least in a much smaller state
(9) UP - they will never die, no matter how badly they screw up - great routes and markets
(10) Mopac - live as long as they have the UP on the west end
(11) Western Pacific - probably dead - bridge routes do poorly in dereg environment
(12) Santa Fe - Intemodal franchise Chic - LA should be enough to keep them going
(13) Southern Pacific - alive, but much shrunken. UP and ATSF eat them alive
(14) Frisco - same as Mopac
(15) BN - alive - can you say powder river
(16) Chicago North Western - alive unless UP finds a better way from Omaha to Chic - which they just might
(17) CN - alive
(18) SOO - the old MILW - dead

I didn’t give this too much thought. Tell me where I’m all wet. I won’t be offended!!!

4

[quote]
QUOTE: Originally posted by spbed

In the case of the UPRR/CNW you are aware that the UPRR was a large shareholder in the CN & W long before they merged? [:o)][:)][:p]

Their engines were yellow and green and their wheels went round and round too. In other words, so?

[8D][:p][:D][:o)][:o)][:o)]

5

Don,

I wouldn’t be so arrogant to call you all wet. I consider your guess at least as good, probably better than mine.

I largely agree with your contentions; but here are the few areas where I disagree:

(3) I think Conrail survives, and survives well.
(5) I completley agree with your Seaboard contention; but I was including the ACL–I definitely think it could not have survived without the ACL.
(6) I don’t th

6

Hmmm…no expert either…and when MWH comes in and slaps us around…oh well…I can see several of the road merged with different partners…

(1) Southern RR - Survivor but would eventually absorb someone else (Family lines?)
(2) N&W RR - survived
(3) Conrail - Agree with Don
(4) L&N & (5) Seaboard RR - I still see the Family Lines occuring …then possibly as a part of SRR.
(6) C&O - survived barely, B&O a part of Conrail maybe?
(7) ICG - maybe with KCS
(8) Wisconsin Central - no call
(9) UP - alive and kicking
(10) Mopac - alive, picking up part of SP TX routes
(11) Western Pacific - probably dead
(12) Santa Fe & (13) Southern Pacific - I’d have predicted eventual merger…but spin off routes as a part of the deal (UP, MoPac, BN)
(14) Frisco - no call
(15) BN - alive - can you say powder river
(16) Chicago North Western - dead
(17) CN - alive
(18) SOO - dead …agree with Don …a part of CP’s gains in the US

7

Dan,

(1) I hope Mark does come in and kick me around on this one. I am kind of missing those sorts of beatings–they are very educational.

(2) I don’t see how Conrail would have died. Wasn’t it doing fairly well before the buyout? It certainly has an attractive core.

(3) When I say don’t make it I mean liquidated in bankruptcy. So that would probably affect the survivors, who would probable be doing the buying.

Thanks for responding.

Gabe

8

How about taking it from another angle - considering the components of BN:

Burlington - Alive due to Powder River coal.
Great Northern - Alive
Northern Paciic - Dead
Frisco - Don’t Kmow
SP&S - Dead as a company, but alive as a part of GN.

9

I can’t argue with that. But it would really affect the way things were shaped on the East end.

Gabe

10

Gabe -

I’m not going to prognosticate on all of it, but perhaps if you are going to assume the STB regime happened early enough to affect the others, such as B&O, C&O, N&W, Southern, L&N, etc perhaps you also need to re-examine Conrail, not as a whole but as the sum of its parts. If deregulation (Staggers Act or similar) had happened twenty years earlier (Staggers was effective in 1980 so if you take 1960 instead) there might not have been a formation of Conrail by the government at all. The strong might simply have absorbed the weak or at least those routes worth keeping and abandoned the rest. In 1960 it was still NYC, PRR, NY,NH &H, EL (just merged in 1960), LV, CNJ and L&HR operating independently. Also the D&H, B&M, MEC, NYS&W and CN/CV need to be considered as all were involved in the big show that was the northeast.

This survival question, particularly where Conrail and the pervasive government legislative scheme created to transform it into a strong new Conrail were not born yet and might never have been if the free market were allowed into the RR business sooner. It certainly makes your question a LOT more interesting.

LC

11

Solid: SR, N&W,CR, WC, UP, MP,ATSF

Shaky: L&N, SBD, B&O,BN (In spite of PRB), ICG,DRGW

Dog meat: C&O, WP,SP,CNW,SOO

12

SP by itself probably could not survive. With D&RGW it might have had a chance.

13

I think you’re safe. As I recall, MWH doesn’t do “what ifs”

14

The combined railroad was hemorraging cash before UP bought it and the SP operating mindset was killing it as well…doomed to fail.

15

As I am trying to model the SP and am interested in the railroad, where can I find out what happened to it? Also, the analysis and discussion of business practices and operations for all these mergered and failed RR’s might provide great case studies for business management and could help surviving roads operate more profitably.

16

Gabe I think on youe BN components you were wrong on NP why take a look at MRL. How many short lines do you know buying new power

17

Good forum Gabe.
I think the NP would have built the proposed Tongue River Railroad from Miles City to the mines around Decker and Sheridan and would have been fine.
The Santa Fe would have taken over the ST.L.S.F. or merged with the MP to get into St.Louis, and Memphis.
Can we let Katy come in and play ? She had the best route from KC to Texas.

18

Conrail may have been a more “iffy” proposition than many people would guess. Yes, the turnaround from the depths of PC was drastic and real, but CR, like many other RRs, was still “eating it’s foot” to stay alive. Even in the mid to late 90s, budgets were so tight that it was hard to justify needed capital spending. For example, locomotive overhauls were continually deferred beyond what Mechanical thought prudent because the money wasn’t there to do all of them. The “business group” model that CR was organized around did extremely well for the auto, coal and intermodal groups, but the Core group, which had 50% of the traffic, was still a bit of a mess. The seasonal variability of traffic was also a problem for Conrail moreso than for other roads (why it was worse on CR, I don’t really know - anybody care to hazard a guess?) so that operating by plan year-round was an elusive goal.

However, the intermodal growth alone might have been able to keep the boat afloat.

Now, if CR had been able to land the Cotton Belt, that would have given them a very lucrative second franchise - Texas Chemical Coast to NJ Chemical Coast traffic.

In order to do the alternative history stuff right, we need to consult with Hari Seldon.

19

I agree with MWH when it comes to ahistorical arguments, an excellent learning exercise but of little use beyond that. I’ve been taken to task for this point of view in the thread regarding the hypothetical survival of the Milwaukee Road where I equated that thread with the argument that steam was scrapped unnecessarily: nice debates that can’t change what already happened.

A lot of excellent points have been made in this thread, and they provide a useful basis for considering what happens next regarding merger, consolidation, regional and shortline spinoffs and abandonment.

20

[quote]
QUOTE: Originally posted by Mark_W._Hemphill

OK, I guess I have to be sucked into this one.

I like Don’s answers, for what that’s worth.

My answer: None of them would have survived. The mergers didn’t happen because CEO’s and boards “felt like it” or “were grasping” or “wanted to get stinkin’ rich.” The mergers happened because they needed to happen for investor-owned railroading to survive. If you deny something that is essential for survival, what do you get? Death.

It is an interesting hypothetical – “If no mergers occurred after the BN merger of 1970 (presumably because the government changed the law and forbid mergers), what would the rail picture look like today?” We’d be discussing (1) the poor performance of the nationalized railway system, or (2) what it was like to watch trains back when we still had something more than six or seven coal corridors.

Realistically, I’m doubtful even BN and UP could have survived without mergers. Without mergers, the weak railroads would have simply keeled over and died, and the traffic flow they created for the strong roads (both originating and terminating) would have evaporated. Without that traffic flow, the revenue stream of the strong roads would have been severely crimped, and they would have had to undergo a harsh retrenchment. UP needed MoPac and WP as much as they needed UP; BN needed Frisco for its cash and credit to pay off the debt it incurred for the PRB expansion. Without those mergers – and with the subsequent inevitable failure and abandonment of WP, Frisco (yes, it was headed downhill fast), Katy, Soo, SAL, ICG, etc., UP and BN would have cut back to a few key corridors for coal, and darn little else.

Feel free to disagree, but since this is an ahistorical thread, I’m not going to lose sleep over it. In general, I disfavor arguments that are counter to the way history worked out, because these arguments imagine that one condition can be changed w