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What's on Matt's mind

Posted by Fred Frailey
on Thursday, February 16, 2017

It’s getting late. My assistant Barbara Turner is making noises she’d like to go home. I tell her to leave, but until I do, too, she won’t budge. Something is on my mind. I am not happy.

I need to talk to Warren. Soon. The eastern railroads are unstable. Our window to create a viable national rail network seems to be about to close. All of this is Hunter’s fault, as is so often the case. You know, it’s funny how things come around. More than 15 years ago, when Rob Krebs tried to merge us with Canadian National, Hunter Harrison would have run the merged railroad and I would have taken my money and left, which was okay with me at the time. But that didn’t work out, and here we are now, still butting into each other.

Okay, let’s think this through. I tell everybody there will be national rail networks. I just don’t want to jump into the process until the time seems right. But events are forcing my hand. Look what Hunter did at Canadian Pacific. He certainly improved the financials—I grant him that. And it was easy for him to vastly improve operations over what Fred Green was doing. But he gutted the railroad, selling every inch of land that wasn’t occupied by tracks or nailed to the earth and firing everyone who showed his face. If you gave CP ten more carloads today, it would grind to a halt.

And now he’s about to do the same thing at CSX. He’ll slim it down to handle no more than the business it now has. He’ll close yards and sell the land under them. There won’t be a carload of excess capacity by the time Hunter is through. Efficient yes, but expandable, no. Maybe the investors will love it, but I doubt that his shippers will. Everywhere he goes, business levels remain static. Canadian National grew only because Hunter bought so many connecting regional railroads.

And I’ll tell you someone else who would not like what Hunter does: me, Matthew K. Rose. He’ll turn CSX into a shell of a railroad I wouldn’t want to merge with. Carl and I invested billions upon billions to add capacity to BNSF Railway. I don’t want a static base of business. I want BNSF Railway to grow even faster than the economy by offering services that shippers prefer to use over the alternatives. I think the future of railroads is unlimited if we can play our hand correctly. Hunter, bless him, has a different vision, and it will affect BNSF in the future in negative ways.

So Warren and I need to talk. Maybe this is the time to step in and spoil Hunter’s party. Yes, make an offer for CSX and present its investors an alternative to having that railroad Hunterized. Warren is going to respond that CSX will cost $10 billion more than it would have January 1—that’s how much Hunter’s arrival has run up the stock price. But we’ll have to pay up big no matter what we do. Wait to pay bottom dollar, and there may be nothing left worth buying.

There’s also Norfolk Southern. You know, I admire that Squires fellow. Last year, when Hunter at CP moved on NS to merge with it, everyone thought Jim would fold under the pressure. He did not blink. Squires is one tough cookie. Maybe we should go to him instead. The managements and values of BNSF and NS are more compatible than those of BNSF and CSX, anyway. We’d let Jim run the combined company, if that’s what it takes—Carl could assume my job as executive chairman and let Jim be CEO. I’d be pleased to step aside. Do anything 15 years, and it gets tiresome. Maybe I’d go back to the trucking business. Or devote time to good deeds like Habitat for Whatever it’s called.

But to just sit here and do nothing—it simply feels wrong all of a sudden.

I wonder what Lance at UP is doing. Nothing, I expect. He’s sees Union Pacific as the loser in the next round of mergers, and I think he’s right. And if we act fast, we’ll get the railroad we want, whichever it is, and he gets second dibs. And while he’s doing that, maybe we need to visit Montreal and try doing again what we tried 17 years ago.

Barbara! Ask Warren’s office if he has time for me to drop by tomorrow. A lot of time.

One thing is for sure: Any merger that Matt Rose does will be approved. The day it is announced, the top 100 people of this railroad and the top 100 people of our partner will be on the road visiting our customers and, if it comes to that, every member of Congress and every Trump appointee who matters. We won’t waste a second. I’ve learned what Rob and Hunter didn’t, which is that mergers are political events initially more than economic. And he who gets there first, wins.—Fred W. Frailey

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