Just curious about thoughts regarding this issue. It is generally accepted, I think, that only one round of mergers is left in this industry. CN and BNSF explored the idea, but it didn’t get far. Will a sale of the DME to CN be the precipitator to another round of mergers, and is this a good idea?
I also understand that CN and DME may structure the deal so that it would not require STB approval. (I think the CN would not be a majority owner, or something like that.)
Are you sure you don’t have the wrong Canadian line in there?
No, I thought CN was one of the serious contenders, but I suppose the same questions would apply no matter wich railroad got involved.
It would be a completely different scenario if one of these money market funds got involved, I suppose.
I’ll have to go back and look, but I thought I had read of the same scenario, but involving CP, not CN.
The most important part of Canadian Pacific is the mainline from Vancouver to Moose Jaw and the Crowsnest coalfields, which are at or near capacity. CP is going to need to keep reinvesting their profits in these lines to stay ahead of growth.
CN is different from North America’s other class 1s, as they have spare capacity, and reinvesting revenue in the system doesn’t really gain them anything. Since CN has an operating ratio of 60%, their problem is how to invest their excess profits. I’m guessing Hunter Harrison has given up trying to outwait the speculators who hold KCS stock, and it is going to remain overpriced. What other acquisition is out there for CN ?
Perhaps I should try reading Tom Murray’s Rail Stockwatch, $10 for 3 months.
All the railroad stocks are overpriced from an M&A standpoint at the moment. Further, the STB is VERY unlikely to approve another such merger given the huge groundswell of opposition that is likely to result from a Democratic Congress galvanized by organized labor, shippers and other railroads who will oppose such an action.
LC
As I’ve mentioned elsewhere, lenders are getting increasingly skittish in the aftermath of the mortgage default debacle, so it may be difficult to impossible to find the money to do such a deal.
Credit markets have dried up, as Paul indicated. It is very difficult to get anything financed now which is in the high yield (junk) status. I am not sure how the credit markets would view DME takeover, particularly with the expanded rail line into Powder River, given the green movement at hand.
ed
The rumblings I have heard (and they are probably just rumblings) is NS + CP = NS, and CN + BNSF = NAR or whatever.
Then what? UP+TFM+KCS=GOD?[X-)]
Hmm, CP+NS=Can’t Please No Shippers
CSX+UP=Caution, Slow and Under-Powered.
CN+DME=Could Not be Derailed by Mayo Execs
BNSF+KCS+TFM= The Soul Train Scramble Board!
I haven’t heard any announcement from any party involved in this so it’s still hard to say how this will turn out. I do know this, though: CP NEEDS to take back the ICE portion of Cedar American Rail Holdings (former “Kansas City Corn Lines”). While the ICE would particularly be an excellent fit for the CN it’s the CPRS who needs it worse. Why? I’m really afraid that without the gateway to Kansas City in its fold the CPRS could potentially be left out of the mix if and when the next round of mergers takes place and would be reduced to nothing more than a meaningless small Class I feeder line. CN, since it already has a way to the Gulf via the former IC, could probably withstand the impact if, say, UP were to grab CSXT and BNSF were to do the same with the NS. I think that there’s a general assumption out there that believes the UP would come to CPRS’ rescue in such a scenario but I wouldn’t count on it. Ditto for KCS should it be counting on BNSF to save it. If CPRS were to take the ICE (and then possibly go after the KCS), it would then be bargaining from a position of strength instead of weakness.
On another front, I wouldn’t be terribly shocked if there’s some sort of joint venture between CPRS and CN to help the DME finance this thing. There’s a lot at stake here and with the potential traffic involved it might be a workable idea.
KCS has really fortified itself. I think KCS isn’t as much of a target as it was in previous years. Perhaps KCS would be a contender someday
If you’ve read Fred Fraily’s latest DM&E news item in September 2007 TRAINS, you’ll notice that KCS is indeed one of three railroads mentioned as part of the 10 member consortia.
All in all, at least a KCS + CARH merger would stand the best (easiest?) chance of STB approval.
As to what happens after a KCS/CARH merger…