https://www.wlwt.com/article/cincinnati-hosting-first-workshop-potential-railroad-sale/45601167?fbclid=IwAR1wh_K6IBAzXEgExP_o0eCbPP86Pau1a56Ce4oi8TsZnsnQ4-F2REE5F34#
CMStPnP https://www.wlwt.com/article/cincinnati-hosting-first-workshop-potential-railroad-sale/45601167?fbclid=IwAR1wh_K6IBAzXEgExP_o0eCbPP86Pau1a56Ce4oi8TsZnsnQ4-F2REE5F34#
IMHO: Thje crux ofthe matter iks couched in this quote from the linked article:
"..."We are putting a lot of money into the hands of people not truly accountable to the public," Witte said. "The lease expires in 2026..."
A price of 1.6 Billion woukd grease a whole lot of poilitical favors and woulkd be a landmark 'kitty' for the politiucal class to spread around....
When the current lease expires; a renegotiated lease would be appropriate for the City to offer NS... If they could not reach an agreement; You can probably bet, CSX would be another likely bidder, and cover NS's expenses in the ,maiintenance of the line, under their ownership, as a part of their new lesase agreement???
The article is a bit one-sided. I suspect the "political class" wants to waste the money on things like roads, bridges, and schools that are currently (under)funded by tax money.
The City of Cincinnati uses the $25 million annual lease revenue from NS for various infrastructure projects.
$25 million is a lot of money to each of us indvidually, but to keep up infrastructure, especially with the high construction inflation over the last several years, it does not go as far as it once did. So fewer projects are being completed each year for the same money.
The concept behind selling the railroad is to put the proceeds in a trust fund, invest them, and only spend the earnings, making the fund a perpetual fund. If they earn 5% steadily they would have $80 million annually to spend on projects.
(If they are smart they will only spend 75% of the earnings annually so the corpus of the trust fund continues to grow and earnings gradually and steadily get larger each year.)
The only question I have and don't have the expertise to answer for sure is whether $1.6 billion is a fair price for 300 miles of railroad.
If one looks at CPKC, KCS had 3,984 track miles in their system as well as locomotives and rolling stock and real estate.
It is not a perfect comparison, but at $31 billion, CP paid $7,781,000 per mile for KCS.
In theory that would make the 300-mile Cincinnati Southern railroad worth north of $2.3 billion. But there is not locomotives or rolling stock involved with the purchase so $1.6 billion seems to be in the range of reasonableness.
Which is a "better line"? NS Rat Hole or CSX Cincy - Knoxville line? CSX could get into quite a p*ssing match with NS by entering into the game and then selling off the old L&N line if they were successful. Not sure if they would do it, but it might be a strategy, similar to what Brosnan did between Chattanooga and Atlanta back in the 1960s when that line came up for review.
My guess is the line is the 2nd most important NS line - Chicago - New Jersey being #1. It could lead to some interesting negotiations.
Ed
MP173 Which is a "better line"? NS Rat Hole or CSX Cincy - Knoxville line? CSX could get into quite a p*ssing match with NS by entering into the game and then selling off the old L&N line if they were successful. Not sure if they would do it, but it might be a strategy, similar to what Brosnan did between Chattanooga and Atlanta back in the 1960s when that line came up for review. My guess is the line is the 2nd most important NS line - Chicago - New Jersey being #1. It could lead to some interesting negotiations. Ed
With the decline of Appalachian coal and the shifting of traffic away from the Cincinnati-Atlanta corridor thanks to PSR, CSX's current gross tonnage is less than 20 MGT. That's less than 20% of what NS is moving over the Rathole. So I don't see any desire on CSX's part to try to to outbid NS to buy the Rathole line. Also CNO&TP's current lease doesn't expire until 2026, with an option for a 25-year renewal. I doubt that CSX has a legal play here even if they wanted one.
Besides, CSX is already busy rebuilding Pan Am and soon the ex-L&N/WofA trackage between Montgomery and Myrtlewood, AL. CSX has bigger fish to fry as they expand their network. As much as Hunter Harrison gets lambasted for his PSR cost-cutting, he was very adept at expanding the geographic reach of the railroads that he ran. CSX is aggresively pursuing that strategy. NS is just foundering trying to keep what they already have. If the current environment wasn't so anti-large merger, I think that somebody would go after them. At $41.73 billion they would be a steal compared to KCS.
ns145 MP173 Which is a "better line"? NS Rat Hole or CSX Cincy - Knoxville line? CSX could get into quite a p*ssing match with NS by entering into the game and then selling off the old L&N line if they were successful. Not sure if they would do it, but it might be a strategy, similar to what Brosnan did between Chattanooga and Atlanta back in the 1960s when that line came up for review. My guess is the line is the 2nd most important NS line - Chicago - New Jersey being #1. It could lead to some interesting negotiations. Ed With the decline of Appalachian coal and the shifting of traffic away from the Cincinnati-Atlanta corridor thanks to PSR, CSX's current gross tonnage is less than 20 MGT. That's less than 20% of what NS is moving over the Rathole. So I don't see any desire on CSX's part to try to to outbid NS to buy the Rathole line. Also CNO&TP's current lease doesn't expire until 2026, with an option for a 25-year renewal. I doubt that CSX has a legal play here even if they wanted one. Besides, CSX is already busy rebuilding Pan Am and soon the ex-L&N/WofA trackage between Montgomery and Myrtlewood, AL. CSX has bigger fish to fry as they expand their network. As much as Hunter Harrison gets lambasted for his PSR cost-cutting, he was very adept at expanding the geographic reach of the railroads that he ran. CSX is aggresively pursuing that strategy. NS is just foundering trying to keep what they already have. If the current environment wasn't so anti-large merger, I think that somebody would go after them. At $41.73 billion they would be a steal compared to KCS.
MP173 Which is a "better line"? NS Rat Hole or CSX Cincy - Knoxville line? CSX could get into quite a p*ssing match with NS by entering into the game and then selling off the old L&N line if they were successful. Not sure if they would do it, but it might be a strategy, similar to what Brosnan did between Chattanooga and Atlanta back in the 1960s when that line came up for review. My guess is the line is the 2nd most important NS line - Chicago - New Jersey being #1. It could lead to some interesting negotiations. Ed With the decline of Appalachian coal and the shifting of traffic away from the Cincinnati-Atlanta corridor thanks to PSR, CSX's current gross tonnage is less than 20 MGT. That's less than 20% of what NS is moving over the Rathole. So I don't see any desire on CSX's part to try to to outbid NS to buy the Rathole line. Also CNO&TP's current lease doesn't expire until 2026, with an option for a 25-year renewal. I doubt that CSX has a legal play here even if they wanted one.
There is a spmewhat profound bit of wisdom kquoted here on a on acurrenty runnig thread here, that seems to apply to NS:
"...Ideas and Plans rarely survive intact after they experience their first battles with reality. As that noted philosopher Mike Tyson [/sarcasm] says every plan changes when you get your first punch to the face..." [quoted from BaltACD, in Thread ":Against all odds-Volumn1]
NS seems to continually misread the current state of affairs in the railroad environment.....see the current brou-ha-ha over the MNBR+CPKCS+CSX line; and what seems tp possiblybe a missed opportunity with partnering(or purchase?) when KCS went lookiing for a 'mate' ?? ( just sayin' )
Don't forget any buyer of NS would have to pay a 30%-35% or so premium.
KCS had $3.37 billion in revenue in 2022 and net income of $982 million per it's last-ever full year 10-K report to the Securities Exchange Commission.
CP offered $300 per share a year earlier in December 2021 to buy KCS which was a 34% premium over KCS share price.
https://www.cpr.ca/en/media/cp-welcomes-the-kcs-stockholder-vote-adopting-the-cp-kcs-merger-agreement#:~:text=The%20transaction%2C%20which%20has%20the,price%20on%20March%2019%2C%202021.
So any buyer would likely have to offer to pay around $56 billion for NS if they offered 34% premium over the NS 10/27/23 closing market capitalization of $41.73 billion. That would be an offer of about $247-$248 per share compared to the closing price of $184.53 per share.
Interesting comparison for the first 9 months of 2023 per their quarterly earnings reports:
Norfolk Southern (of course East Palestine has had an impact)
Total Revenues - $9.236 billion
Total Net Income - $1.300 billion
Net Income % of Revenues - 14.1%
CPKC Combined
Total Revenues - $8.779 billion
Total Net Income - $2.905 billion
Net Income % of Revenues - 33.1%
NS has taken a big hit, no doubt. Its Net Income % of Revenues was 37.8% in 2022. But when its market cap is the lowest of all Class I's by a margin of $17 billion, there have to be some M&A types in Omaha, Ft. Worth, and Montreal that are sharpening their pencils. And, if not them, then someone interested in investing in transportation infrastructure. NS will never be this cheap again. I don't think that the STB has any stomach for a Class I merger right now, so its all probably moot. My main point was how the mighty have fallen.
Berkshire Hathway was able to relatively easily buy all of BNSF and take it private because of course, it was not a railroad.
NS145, you are right in that NS probably could be a target for an investment group such as Fortress or Grupo Mexico.
One hurdle right now is the higher interest rates for any debt they would need to borrow.
You'll recall that CP closed its acquisition of KCS in December 2021 which was before the big runup in interest rates that started in mid-2022.
Of course, Warren Buffett made his purchase offer of BNSF in 2009 right after the economic meltdown when interest rates had cratered and were at historic all-time lows, and closed on the purchase in February 2010 when interest rates remained low. As a non-railroad, that purchase was able to be completed relatively quickly.
Here is an interesting read from March 2023 on how well Berkshire Hathaway has done over time with its purchase of BNSF:
https://seekingalpha.com/article/4590310-riding-rails-of-profit-returns-berkshire-had-from-bnsf
Warren Buffet really is an amazing investor!
kgbw49 Berkshire Hathway was able to relatively easily buy all of BNSF and take it private because of course, it was not a railroad. NS145, you are right in that NS probably could be a target for an investment group such as Fortress or Grupo Mexico. One hurdle right now is the higher interest rates for any debt they would need to borrow. You'll recall that CP closed its acquisition of KCS in December 2021 which was before the big runup in interest rates that started in mid-2022. Of course, Warren Buffett made his purchase offer of BNSF in 2009 right after the economic meltdown when interest rates had cratered and were at historic all-time lows, and closed on the purchase in February 2010 when interest rates remained low. As a non-railroad, that purchase was able to be completed relatively quickly. Here is an interesting read from March 2023 on how well Berkshire Hathaway has done over time with its purchase of BNSF: https://seekingalpha.com/article/4590310-riding-rails-of-profit-returns-berkshire-had-from-bnsf Warren Buffet really is an amazing investor!
The linked site and article posted by kgbw49 is a really fascinaing read, for anyone who is an investor, or a railfan interested in Berkshirre Hathaway's BNSF.
Thank You, kgbw49 for posting it.
Glad to be able to pitch in, samfp 1943!
It looks like BNSF is going to be sending another $5 billion in net income over to Berkshire Hathaway again for 2023.
The other thing they have been able to do is borrow money at the low rates of the last decade to increase their capacity - invest it in long-lived assets that will help increase future earnings.
Other railroads that are not privately held ran up their debt during the last decade to buy back shares - long term debt for a short term benefit.
BNSF is now the largest railroad in the US by volume of cars and containers. They keep steadily adding capacity to their system, and steadily "printing money" for Berkshire Hathaway.
Now if we can just convince them to buy ATSF 2912 or CBQ 5629 and start a corporate steam program...
No. Leasing 2926 would make far better sense, and if they want to restore their own, 3463...
Still, not a bad return on investment for the city.
Overmod No. Leasing 2926 would make far better sense, and if they want to restore their own, 3463...
Overmod, I thought about 2926. I really did.
But then I just couldn't see the organization that has worked since 1999 to get 2926 running giving even temporary control to someone else.
261, 4014, 2100, 5288, 624 all have been static displays before changing hands. So that is why I thought about 2612 or 5629.
Then again, maybe BNSF could make NMSLRHS an offer too good to refuse!
And 3463 would be incredible too!
The voters of Cincinnati have approved the sale by a close margin.
CSSHEGEWISCH The voters of Cincinnati have approved the sale by a close margin.
1. will NS walk away with the CNO&TP ?
2. Will somebody else raise the price?
3. It will be an interesting topic to watch unfold....
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