When I was looking at the map of UP’s growth through successive acquisitions in the recent issue of Trains they all kind of made sense to me except UP’s purchase of the Katy. According to the maps, UP already had excellent access to TX via its earlier acquisition of MP, so why did they acquire Katy?
Easy to prevent either the ATSF or KCS from buying them up. Called Swallow your Competitors up before someone else DOES and then the new company is better than you and can EAT YOU.
Ed’s rationale (above) is certainly good and valid. But wasn’t this done for the specific purpose of - or maybe one additional benefit was - to implement ‘directional running’ on portions of those ex-MP and ex-Katy lines to Texas ? (i.e., use one mostly for southbound traffic, and use the other for mostly northbound traffic) By buying/ merging to acquire a 2nd track (albeit on a different route), that saved the CAPital EXpenditure of double-tracking the ex-MP line. (But I could be mis-remembering or confusing this with another similar arrangement someplace else.)
- Paul North.
The former Missouri Pacific line south of Muskogee, OK was little more than a branchline, it wandered more than the Katy, and it was inferior in almost every way. Except for a few stubs, it’s all gone. North of Muskogee, the former MP line is the better track.
Look at the 1995 map in the lower left corner of page 26 (August 2012 Trains), which shows in blue the M-K-T acquired in 1988 (as well as in yellow-orange a portion of the Rock island purchased in 1982 by an M-K-T subsidiary). The M-K-T route appears to be much more direct from Kansas City (and points north, such as Des Moines, Omaha, and the Twin Cities, as well as from all of the westerly UP lines in those pre-SP merger days) to Dallas - almost a due North-South line - than the more roundabout route from KC south then east to Little Rock, next southwest and then due west to Dallas. Although, the 1983 map in the center right of the same page also shows an MP line (merged 1982) on almost the same alignment, but that line is not shown (or is not visible under the M-K-T line) on the 1995 map.
- Paul North.
Ulrich:
What Paul North says makes some sense as for the aspect of Directional Running and the ability to not HAVE to put in Double Track on some links.
Although the MKT [The Katy] is now part of the UPRR structure, its arrival in that status was somewhat convoluted as how it finally landed in the modern UPRR’s system.
Fro starters, the forerunner of the modern KATY RR was known as the Union Pacific Railway- Southern Branch which was a line of approx 182 miles from Herington, Kansas to Parsons, Kansas in 1865 and was incorporated into the KATY in 1870… It was in 1870 that with the incorporation of about 5 railroad Companies the KATY was to resemble its operating plant into the 20th Century.
It was in the early 1980’s that the KATY was purchased by the Missouri Pacific RR. This was done to resolve some some problems surrounding MPRR Corporate Bond Issues(?) . It was in 1988that the KATY was incorporated into the UPRR. Because of the mergers KATY was operationally a mere shadow of its original condition.
Much of KATY’s traffic was of the ‘Overhead’ variety and had largely disappeared. While KATY was wallowing in a sea of red ink a
I am currently reading “Union Pacific The Reconfiguration” a detailed look at UP from 1969 to the present. And “detailed” it is. I just finished the UP-MoPac merger. Within a day or so no doubt I will have finished the Katy merger and will let you know what Mr. Klein has to say.
My thoughts at this time are essentially what has been stated…MKT while it was not in good shape, did offer the best route between KC and DFtW. Looking at my early 1990’s Official Guide map of UP, the MKT route appears to fill in the gap. Remember that there was a massive amount of PRB coal moving by mid 80s either by BN or UP. BN could easily reach Texas markets with their direct route thru Denver, Pueblo, and Amarillo to DFtW.
UP had to run the coal to KC then either east to St. Louis and down the Illinois line or west from KC to Abeline make a left hand turn and go thru Wichita to Ft Worth. I have no idea of the conditions of those lines.
Plus, the MKT line would give UP the great route of grain from the Rock Island Spine Line (Twin cities to KC down to the export market at Houston or to the feeder lots in Texas or Mexico.
What is the volume of traffic now on the MKT line? Does UP exercize directional on their two lines?
BTW, the book on UP is excellent. I will post more on my original thread.
More to follow after the next couple of chapters.
Ed
[EDITED ABOUT 2 HRS. LATER] There was once a short ‘sidebar’ or ‘frontispiece’ article on those bonds (or similar) in Trains in the late 1960’s - 1970’s time frame (though I might be confusing them with KCS ?). I can’t find the reference right now, but so that makes sense. Here’s a reference to the a follow-up article:
“Katy’s funny pieces of paper - income certificates”
by Frailey, Fred W., from Trains, April 1986, p. 20
At the time, those income certificates had stymied the merger of MKT into MP (UP) twice, and it looked like a poker game between the railroads and an investor group as to who was going to blink first or ultimately win, etc. ( I wonder how that turned out ?)
In the meantime, here are citations to 2 articles (among others) that are pertinent:
“Can Mr. B. save Miss Katy? - John W. Barriger’s fight to save the Missouri-Kansas-Texas”
by Morgan, David P., from Trains, August 1966,
Chapter 14 of “The Reconfiguration” briefly addresses the MKT merger…
MTK had been a marginally profitable railroad most of it’s history. In 1970 Reginald Whitman became CEO and was able to control expenses and make some capital improvements to the railroad. A holding company, Katy Industries, had been formed in 1967 and efforts had been made to sell the railroad. By 1979 MKT originated only 27% of the tonnage it handled, making it very vulnerable to the mergers in the industry.
John Kenefick, the UP CEO was attracted to the direct route from KC to Dallas/FtWorth and on to the gulf at Houston. UP’s planning department did their homework and found:
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More than 50% of the 1630 mile mainline was 90 pound rail or less.
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36% of locomotives and 73% of freight cars were leased…at high rates.
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$377 million in assets with $206 million in long term debt in 1983.
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Katy Industries owned 98% of the stock…but
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There were $51.7 milliion in subordinated income debentures and $73.4 million in “non-interest bearing certificates” which were issued in 1958 in lieu of unpaid dividends accrued of preferred stock. These were issued when MKT came out of bankruptcy in 1958.
No one really understood what these certificates were, or what the ramifications were, except they had to be retired before the merger could be completed. An investment banker purchased roughly 49% of the certificates and held the merger hostage, demanding a high payment. UP walked away from the merger and the investment banker was stuck holding the certificates. The banker and UP came to a settlement allowing the banker to make $$$ and UP to purchase MKT for $108 million.
The merger was closed on August 12, 1988.
MKT owned considerable land in downtown Houston and Dallas, which UP sold at a higher price than the purchase price.
UP got it’s route for all tha
Someplace else I read that it was the shortest route of any railroad from KC to Dallas.
For more on this, see:
“Katy’s funny pieces of paper - income certificates”
by Frailey, Fred W., from Trains, April 1986, p. 20
- Paul North.
I worked for the Katy for several years in Marketing & Sales during the 70’s and 80’s. The plain and simple truth is that the Katy had the shortest rail miles between KC and Dallas and the UP needed additional mainline capacity between those 2 points. Our transit times were very competitive with our rivals between Kansas and Texas. It is true that the majority of the traffic was overhead, but, believe it or not, we had marketing agreements on thru traffic with CNW and CR that provided much of that traffic.
Thanks,
Camas Prairie Bob;
You have confirmed what several here have in part suspected.
And Welcome here! [#welcome] Look forward to your contributions!
Prairie bob:
Thanks for the contribution. I just read a passage in “Leaders Count” in which certain BN officials believed a mistake was made in purchasing Frisco rather than MoPac. What really floored me was that there was a group inside BN which felt the Katy would have been the best choice for them in the late 70’s/early 80’s.
That thought was not expanded, but perhaps you can add some input. Do you recall how much coal was moving on the Katy at the time of your employment? Also, the Katy line would have opened up BN to moving grain to Texas for export.
Now, regarding the marketing agreement with Conrail, was that moved thru St. Louis?
Ed
I was at a Katy Historical Society convention several yrs ago of which former MKT chairman Harold Gastler was keynote speaker. His presentation was informative and outstanding. Keep in mind that there were many areas where UP had rights on Katy trk and vise versa. This made a combo of the two systems a natural. No doubt also this became a purchase of a property so no other carrier could buy it. Here in Wichita the merger has had big effects. At merger time in 8/88, the OKT ran a pair of daily trains, with extra sections as needed, and a daytime yd job. Now almost 25 yrs later, there are 12-15 trains daily through the Air Cap with around clock yd jobs. This merger turned UP from a east-west to a north-south rr through this area.
When UP bought Katy a price cutter left the game.