rail mergers

[Anonymous]

there have been several posts regarding takeovers of csx by cn and others, of kcs by every one, of csx by bn etc and et al.
is there a theory or business model of just how the various railroads view eachother and how various merger partners would fit together as transportation entities?
who is good for who? what are the business realities which create the benefits from hypothetical mergers of various class 1 railroads?

[Anonymous]

The Class I executives think about it all the time because they would be foolish not to. Merger has been a constant in railroading for 150 years now. We know this because they talk with us about it constantly, too.

That said, I see zero indication that any Class I wants a merger at present badly enough to take on the risk it would entail. There would not be one merger, but a cascade of mergers, and no one knows where that would go. There's a huge risk that another round of mergers would result in the federal government imposing some form of reregulation or open access, and that's an enormous chasm no one wants to even think about looking at. The pieces fit together in interesting ways, but there is no compelling way. Any east-west merger doesn't get anyone very much that they don't already have, and it's conceivable that whoever starts this merger chain will end up with the worst deal.

In sum, if you were a Class I CEO, you're not going to leap off a cliff blindly, and another merger would be just that.

Monday morning, some Class I could prove me wrong, of course. This is why Trains Magazine does not waste it's time predicting or not predicting mergers. We'd be right maybe 15% of the time, and the one time we WERE right no one would remember that we were there first. I don't do bets I can't win.

[Anonymous]

"Any east-west merger doesn't get anyone very much that they don't already have, and it's conceivable that whoever starts this merger chain will end up with the worst deal."

this is how it seems to an outsider. why merge east into west? the freight hand off from both major western roads to either of the eastern roads seems to work just fine.
why would cn take csx into its fold? cn would seem to be just assuming csx's existing competition with ns. why bother paying a takeover premium to step into someone elses fight? cn already has gulf of mexico access, the great lakes and atlantic ocean deep water. the only class 1 small enough to be picked up would seem to be kcs with her mexican connection she offers something new in regard to territory, sea ports and nafta, but who ever buys kcs will wait for the legal hassel to settle and that will pu***he price to a premium.
cbt141

[csxengineer98]

QUOTE: Originally posted by Mark W. Hemphill

The Class I executives think about it all the time because they would be foolish not to. Merger has been a constant in railroading for 150 years now. We know this because they talk with us about it constantly, too.

That said, I see zero indication that any Class I wants a merger at present badly enough to take on the risk it would entail. There would not be one merger, but a cascade of mergers, and no one knows where that would go. There's a huge risk that another round of mergers would result in the federal government imposing some form of reregulation or open access, and that's an enormous chasm no one wants to even think about looking at. The pieces fit together in interesting ways, but there is no compelling way. Any east-west merger doesn't get anyone very much that they don't already have, and it's conceivable that whoever starts this merger chain will end up with the worst deal.

In sum, if you were a Class I CEO, you're not going to leap off a cliff blindly, and another merger would be just that.

Monday morning, some Class I could prove me wrong, of course. This is why Trains Magazine does not waste it's time predicting or not predicting mergers. We'd be right maybe 15% of the time, and the one time we WERE right no one would remember that we were there first. I don't do bets I can't win.

pure speculation on your part....you are someone on the outside looking in.... it is comeing...and soon..... take it from people that are in the front lines of the industry and see the writing on the wall get darker and bigger letters evey day....
csx engineer

[Anonymous]

CSX Engineer: If you have specific evidence that you have access to at your job that points irrefutably and unquestionably toward a merger, please share it, and which roads, and when. We're not hearing it.

As you point out, we at Trains are now on the outside -- I no longer work for a railroad (though my rules and FRA qualifications are still current). But the 20 or so vice-presidents, train dispatchers, engineers, conductors, consultants, signalmen, civil engineers, marketing managers, lawyers, and roadmasters I talked to in the last three days who work for UP, CSX, CN, CPR, BNSF, NS, KCS, and a few short lines and regionals, including this morning, don't know of any merger nor of any credible rumors, and I have no reason to believe they're kidding me or holding out information.

[Anonymous]

"take it from people that are in the front lines of the industry and see the writing on the wall get darker and bigger letters evey day...."

what is the fit for assets or markets which cn finds attractive in a csx acquistion? i respectfully ask this since the "rumor mill" works this story so fully and regularily, yet
the advantage of a merger to either party seems to be ephemeral or entirely overlooked by the parties to the discussion.
a parallel question is why cn/csx rather than cn/ns?
cbt141

[Anonymous]

QUOTE: Originally posted by csxengineer98

QUOTE: Originally posted by Mark W. Hemphill

The Class I executives think about it all the time because they would be foolish not to. Merger has been a constant in railroading for 150 years now. We know this because they talk with us about it constantly, too.

That said, I see zero indication that any Class I wants a merger at present badly enough to take on the risk it would entail. There would not be one merger, but a cascade of mergers, and no one knows where that would go. There's a huge risk that another round of mergers would result in the federal government imposing some form of reregulation or open access, and that's an enormous chasm no one wants to even think about looking at. The pieces fit together in interesting ways, but there is no compelling way. Any east-west merger doesn't get anyone very much that they don't already have, and it's conceivable that whoever starts this merger chain will end up with the worst deal.

In sum, if you were a Class I CEO, you're not going to leap off a cliff blindly, and another merger would be just that.

Monday morning, some Class I could prove me wrong, of course. This is why Trains Magazine does not waste it's time predicting or not predicting mergers. We'd be right maybe 15% of the time, and the one time we WERE right no one would remember that we were there first. I don't do bets I can't win.

pure speculation on your part....you are someone on the outside looking in.... it is comeing...and soon..... take it from people that are in the front lines of the industry and see the writing on the wall get darker and bigger letters evey day....
csx engineer

I suspect that any evidence out there is anecdotal and circumstantial at best. For example the fact that CSX and CN recently began computerized joint pricing or the same old rumors that the BNSF is lending the NS payroll money. How many times have I heard that trash in the crew room. I seem to recall Waba***elling us over a year ago that the CSX/UP merger was imminent. Well, I'm not holding my breath still. Over a year has passed without even an announcement.

Mergers may come but Mark has a good point, they are fraught with potential perils and limited upsides. Some competition is very good for the railroads. An interesting trend with some of the regionals and even short lines are efforts to keep and expand short haul traffic that the lines can control and price and reduce dependence on the Class 1 connections. For example, take a look at the Nittany & Bald Eagle RR and the reasons they won the ASLRRA marketing award this year. Replacing lost industries with short haul moves. Look too at the DM&E fighting to construct a connection to the Powder River Basin on it's own tracks.

It's a Brave New World, in the RR Industry, again...

LC

[JoeKoh]

I agree that no railroads are really in shape for a merger.Csx has its problems.Up has problems getting power and people on its own lines.Bnsf and Ns have their problems too.what might look good on a map would be a huge meltdown.
stay safe
Joe

[csxengineer98]

when your paycheck comes from UP when you work for CSX...thats a good chance that something is in the works.....such as last month when UP footed the csx payrole....i cant give you exact date and times.... only the people in the very top would know any of that.... face it...the writeing is on the wall..as much as you buffs and mag. editors might think that its not happeing...IT IS HAPPENING....slowly but it is happening....csx is taking pages from the UP play book.... its restructering its managment....after UP.... they have been consolidating opporations at some of the termials on the fringes of the systems where both rail roads have access....and as csx dispatcher said the in this posting..or another one....csx is upgrading its dispatching system to the exact same thing as UP..not to mention that this summer.... csx is going to a track warnt system for dark teriorty...unlike the current DTC block system that it has in place now.... just like what UP uses....
the time table is set...it is just a question of when......and i dont have that answer to when...but evideance points to soon....
csx engineer

[Anonymous]

QUOTE: Originally posted by csxengineer98

when your paycheck comes from UP when you work for CSX...thats a good chance that something is in the works.....such as last month when UP footed the csx payrole....i cant give you exact date and times.... only the people in the very top would know any of that.... face it...the writeing is on the wall..as much as you buffs and mag. editors might think that its not happeing...IT IS HAPPENING....slowly but it is happening....csx is taking pages from the UP play book.... its restructering its managment....after UP.... they have been consolidating opporations at some of the termials on the fringes of the systems where both rail roads have access....and as csx dispatcher said the in this posting..or another one....csx is upgrading its dispatching system to the exact same thing as UP..not to mention that this summer.... csx is going to a track warnt system for dark teriorty...unlike the current DTC block system that it has in place now.... just like what UP uses....
the time table is set...it is just a question of when......and i dont have that answer to when...but evideance points to soon....
csx engineer

More anecdotal evidence. Did the checks come from UP or did someone just say the money came from there? Those sorts of loans have to be approved by Boards of Directors, Shareholders and potentially regulators. These are public companies we are talking about. Absent real proof it is just more rumor and innuendo. The fact that CSX is trying out different management methods and equipment is nothing new. Does the fact that former NS honcho Tony Ingraham is now the COO at CSX mean they are likely to merge with NS? I doubt it.

No matter how it may appear or be rumored, things at the top don't function the way those of us closer to the ballast may hear. There's plenty of proof of that in the past...

LC

[wabash1]

Limited clear

Before you say somethng get the facts straight. I never said that the CSX and UP was merging .... Look it up. I said It was the NS and BNSF. and i never gave a time frame. so hold your breath or not i dont care things are in motion working just as the carriers want with no service problems.( well maybe on the up there is) and the fat cats are getting richer.

[Anonymous]

it seems that if there were to be a merger it would run west /east or canada /east. why would up or bnsf want csx or ns? the economies of scale must already be present in companies of this size. so this would not be a compelling concern.
two other motivators are asset / market fit and preemptive blocking of a competitor's merger.
any synergistic benefit to a post merger mega railroad would probably be greatly watered down by the government regulators who would require that the merged entity grant consessions and divestitures of properties which would help competitors survive in the post merger environment, ie., up/sp trackage consessions to ksc. this would dampen any bottom line benefit of a takeover and would reduce the premium being bid into the value of a takeover offer. if there is no premium in the bid then the targeted company has no incentive to allow itself to be acquired.
correspondingly, since a predator can see that any advantage he may obtain will be regulated away or priced into the value of a bid he will understand that the same regulatory and bid value hurdles apply to his competitor. this should make the need of a preemptive takeover a much less valuable strategy.
i would like to ask again: what specific value do these companies see in eachother that would make the legal and banking expense of a takeover program worthwhile?

[Anonymous]

QUOTE: Originally posted by wabash1

Limited clear

Before you say somethng get the facts straight. I never said that the CSX and UP was merging .... Look it up. I said It was the NS and BNSF. and i never gave a time frame. so hold your breath or not i dont care things are in motion working just as the carriers want with no service problems.( well maybe on the up there is) and the fat cats are getting richer.

OK, you are correct you were talking about the NS and BNSF in an older thread about who would buy CSX. You said:
<<
wabash1 Posted: 12 Aug 2003, 09:05:21 Quote

Posts: 1145
Joined: 22 Apr 2001
Location: US
I wouldnt say that. limited clear . the reliable sorces i have ( not from the round house) is that the paper work is signed and has been since 1999.the bnsf and the ns. and the bnsf would be the parent company my source has never lied and when he said something would happen it would. why the wait you ask? simple they wanted the ns to pay down the debt on the conrail. We was told about a month ago there was going to be a major annoucment comming. well its been 30 days now and i am waiting .
>>

Perhaps I misunderstood what you said way back in August 2003, but it sounded to me like you expected something to happen immediately or at least very soon given your reference to thirty days. It has now been 270 days since your post and apparently 300 or more days since you heard this rumor. To my knowledge there has not been any announcement from NS or BNSF to date. I also find it difficult to believe that an agreement to merge entered into in 1999 would be seriously entertained today. A LOT has changed since 1999 and I would have serious doubts that any Board of Directors worth it's salt in our post Enron/Worldcom world of increased corporate scrutiny wouldn't want to readdress and renegotiate such an agreement, if it even exists.

Call me a cynic, but I don't buy it any more than CSXEngineer's rumor.

LC

[Anonymous]

During my research I found the following statement attributed to CSX President Michael Ward at this year's CSX Annual Meeting in Jacksonville:

At the end of the meeting, Ward responded to the questions of several shareholders. Among them was James Barber, who traveled from Yonkers, N.Y., to praise the work of three New York members of CSX#8217;s Police and Special Service Department and to ask whether CSX is in talks to be acquired by Union Pacific, which runs trains on the West Coast.

#8220;We are in no discussions with Union Pacific Railroad or any other railroad now, nor do I think we will be soon,#8221; Ward said. In the industry, #8220;there#8217;s not really a sentiment for additional rail mergers.#8221;

So much for any immediate CSX-UP merger...

LC

[wabash1]

Glad you took the time to look up the post i made. I just love it when someone calls me a liar then tries to prove it. And in the post i said I am still waiting also. and as far as rumors go i guess David Goode office puts out rumors then. Cause this came from his office by company e-mail . They did tell us what the big thing was. but it was that important that i dont even remeber what it was. I stand firm on my original statement . Here is a question for anyone who wants to try and answer it. and most answers will be wrong. What is Norfolk southern?

[Anonymous]

Just so we're clear, which Norfolk Southern are we talking about? Norfolk Southern Corp.?

LC

[Anonymous]

i would like to ask again: what specific value do these companies see in eachother that would make the legal and financial burden of a takeover program worthwhile?
what benefits would up get from a merger with csx? what does csx have that up wants or wants more of? how would that impact bottom line? same questions for bnsf/ns.
there seems to be an on going issue of whether a mega merger is in the offing, but no one address who would go for who, why they would bother, how much would they pay for ownership and how they will recupe the cost.
if no one knows who, why or how then prospect not very tangible and is probably too remote to be anything but a conversation piece.

[oltmannd]

For there to be a merger, there has to be something in it for the stockholders or the boards won't vote for it.

In all the past mergers, the lead partner in the merger paid the weaker partner bonus on the current stock price to get the deal done. (in the case of Conrail, it was a HUGE bonus)

The money for the bonus on the stock price had to come from cash on hand or borrowed.

The past round of mergers have left the RRs up to their necks in debt. They are all just getting by at slightly above junk bond ratings right now. None of the mergers has produced enough benefit yet to pay down much debt or amass a pile of cash.

Right now, save maybe the CN, no class one is in a position to offer another a premium for their stock, so no mergers are being proposed.

One other point, any east-west merger would cause drastic changes in traffic flow, particularly at the current gateways because NS and CSX currently split their traffic with UP and BNSF. A merger would re-route half of this traffic. Changed traffic flows were a big part of the problems with past mergers. I don't think RR mgt has enough Maalox on hand to tackle a merger yet.

[Anonymous]

don,
thank you.
can you go a bit further on your enclosed comment?

"One other point, any east-west merger would cause drastic changes in traffic flow, particularly at the current gateways because NS and CSX currently split their traffic with UP and BNSF. A merger would re-route half of this traffic. Changed traffic flows were a big part of the problems with past mergers."

[oltmannd]

In order for railroads to be sucessful, their train service plans have to be pretty finely tuned to serve their traffic base. Normally, railroad service designers will just tweak the existing plan to keep the network operating efficiently. If you make a major change to the network, then you pretty much have to start from scratch and that is a huge undertaking. After the CR split, it took NS a year to understand how traffic was flowing and get operations under control. Another year to develop an optimized operating plan using computer models (the network is too big to use the tradition "brute force" method of design). And a third year to implement the new plan without crashing the system (again).

In an east/west merger, traffic flows would be upset. For example, NS does a lot of intermodal business with the BNSF and a lot fo automotive business with the UP. Suppose NS and BNSF merge. NS will fight to get the automotive taffic routed over BNSF and UP will fight to keep it (and probably have it move on CSX in the east). The outcome of these battles will have a major effect the train service plan of all the involved roads. They won't be able to develop a decent train service plan until AFTER these battles have been fought, so no one will be able to predict the crew base and locomotive fleet they will need with any level of certainty, so any merger will likely have a sizable up-front cost to take care of this uncertainty.

[Anonymous]

thank you.

[wabash1]

there is only 1 norfolk southern corp .

[Anonymous]

Great topic! iIhave some questions if I may... mergers,by definition,of railroads are consentual between the two? Is there such a thing as a 'takeover' in the RR industry since all class 1's have publicly traded stock? If so- can the takeover be blocked?

[Anonymous]

QUOTE: Originally posted by toyomantrains

Great topic! iIhave some questions if I may... mergers,by definition,of railroads are consentual between the two? Is there such a thing as a 'takeover' in the RR industry since all class 1's have publicly traded stock? If so- can the takeover be blocked?

merger can be hotly contested by the target management. the term poison pill refers to just such a situation. the targeted corporation builds into its bylaws various barriers which are aimed at making the acquiring corporation assume a level of cost which makes the acquisition price unattractive. although companies are publicly traded the recommendation of management and their legal and accounting staffs are very important in motivating the large stockholders into selling enough of their stock to surrender a controlling interest to the predator company at a price the predator can finance. thus the terms "friendly "and "hostile".

[wallyworld]

I read some time ago that evolution depended on both cooperation and competition between species. I think the most probable near term scenario is more cooperation between operating companies in direct or indirect terms. I think we can expect to see more expedited high priority run through loads, more standardization of current or emerging technology. The issue of safety in terms of hours of service within operating rules will be sooner rather than later. As far as a direct merger between any of the major players is concerned, if the past history of mergers is any indicator, it will take a downturn in the financial affairs within one of them to prompt a road to seek any operating efficiencies or advantages by acquiring the faltering company. This in turn will prompt a defensive feeding frenzy which no one in any road looks forward to. However, the economic conditions in which these roads operate can always pose a potential tipping point in the future.

[Anonymous]

what are some of the reasons that west /east merger rumors consistently match up bnsf with ns while up is paired with csx?

[wabash1]

the main reason for bnsf wanting to team up with the ns is they have no trakage rights to the east coast. and hence the money would be greater ( more profit ) if they did.

[Anonymous]

QUOTE: Originally posted by wabash1

there is only 1 norfolk southern corp .

True. But one of the reasons for my question was the existence of the Norfolk Southern Railroad running routes from Charlotte, NC to Norfolk, VA via Raleigh, NC and a line south to Morehead City, NC. It was purchased by the Southern Railway in 1974. At various times during it's existence this railroad was known as the Norfolk Southen Railroad, the Norfolk & Southern Railroad, the Norfolk Southern Railway Co. and a number of less recognizable names. It also used the reporting marks "NS". Much of this railroad remains in operation as part of the current Norfolk Southern Railway Company, a subsidiary of Norfolk Southern Corp.

Now, you asked about the current NS, my best answer to that question is what is written in the NS 2002 Annual Report on page 1, that reads as follows:

"Description of Business

Norfolk Southern Corporation is a Norfolk, Va., based company that controls a major freight railroad, Norfolk Southern Railway Company. The railway operates 21,500 route miles in 22 eastern states, the District of Columbia and the province of Ontario, serves 20 ports and connects with rail partners in the west and Canada, linking customers to markets around the world. Norfolk Southern provides comprehensive logistics services and offers the most extensive intermodal network in the East."


Hope that answers the question.


LC

[CSSHEGEWISCH]

The closest thing that I can remember to a hostile takeover was an attempt in the 1980's by Olympia & York to buy into the Santa Fe. Most takeover artists of that era probably avoided railroads because it would have been difficult to sell off parts of the business to pay off the debt incurred to finance the takeover.

[Anonymous]

QUOTE: Originally posted by CSSHEGEWISCH

The closest thing that I can remember to a hostile takeover was an attempt in the 1980's by Olympia & York to buy into the Santa Fe. Most takeover artists of that era probably avoided railroads because it would have been difficult to sell off parts of the business to pay off the debt incurred to finance the takeover.

I believe that the Conrail split was in reality a proposed merger between CSX and Conrail and the NS repsonse to it that was a hostile takeover bid for Conrail. After the litigation and related dust settled a deal was made, but the hostile bid certainly drove the price up beyond any reasonable expectation.

LC