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Canadian Pacific Sweetens Offer for KCS

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Posted by kgbw49 on Tuesday, August 31, 2021 8:24 PM

CP is the horse on the inside rail now. The pre-2001 merger rules were very pro-merger and in fact the STB specifically allowed for a KCS exemption in 2001 for potential use of those pre-2001 rules.

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Posted by CMStPnP on Friday, September 3, 2021 5:59 AM

kgbw49
CP is the horse on the inside rail now. The pre-2001 merger rules were very pro-merger and in fact the STB specifically allowed for a KCS exemption in 2001 for potential use of those pre-2001 rules.

We'll know on Sept 12th.   CP stated it's offer expires on Sept 12th which strangely enough is a Sunday so I wonder if I have that date correct.    However, CP indicated the higher offer is off the table start of business on Sept 13th.

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Posted by Overmod on Friday, September 3, 2021 7:28 AM

I respect CP for not making their higher offer contingent on the STB approving CN's voting trust.

The important date is, and remains, the KCS atockholder's meeting (I'm presuming that despite the STB's statement, they made sure to rule on this ahead of the meeting date).  The offer extends a week past that meeting, presumably to allow finalization of acceptance if that is agreed at the meeting.

https://apps.online.computershare.com/MeetingsShareholderWeb/Home?Code=MUKQC2H&Invitation=&Locale=en

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Posted by kgbw49 on Saturday, September 4, 2021 11:22 AM

The KCS Board has indicated that the $300 per share offer of CP can be deemed a superior proposal to the CN proposal and KC will begin exploratory work on a potential merger with CP.

https://www.kcsouthern.com/media/news/news-releases/kansas-city-southern-board-of-directors-determines-proposal-from-canadian-pacific-railway-could-reasonably-be-expected-to-lead-to-a-superior-proposal

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Posted by Lithonia Operator on Wednesday, September 15, 2021 12:08 PM

Here's Trains' article.

https://www.trains.com/trn/news-reviews/news-wire/canadian-national-drops-pursuit-of-kcs-clearing-way-for-canadian-pacific-kcs-merger/

How long do you think the STB will take to make a ruling on this? Do folks think it will eventually get approved?

I see where the CSX-PanAm deal has hit snags.

Still in training.


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Posted by adkrr64 on Wednesday, September 15, 2021 1:20 PM

I'm pretty sure the STB already ruled that CP-KCS would NOT be considered a major merger and thus would get a lower level of scrutiny during the approval process. CN-KCS was considered a major merger, subject to increased scrutiny, and that is pretty much what torpedoed their merger.

I suppose the STB might find some reason to rule against it, but they have more or less signaled that it will go through without issue on their end.

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Posted by kgbw49 on Wednesday, September 15, 2021 7:03 PM

The pre-2001 merger rules were much more aligned with the approval of mergers as a benefit of the Staggers Act to help railroads stay strong and survive, as long as there was not some humungous show stopper of anti-competitiveness.

The post-2001 merger rules were written to better preserve and enhance competition, but a combination with KCS was specifically exempted to some degree from the post-2001 merger rules, though not completely.

The STB seeing the two smallest railroads merging to ostensibly make themselves into a stronger healther single system prompted them to rule that they will review the CP-KCS merger under the pre-2001 merger rules.

The STB seeing the merger of one of the larger systems - CN - with KCS and the potential for spinning off or downgrading a significant portion of KCS trackage, which would reduce competition, prompted them to rule that they would have reviewed the CN-KCS merger under the post-2001 merger rules.

CP-KCS has a very good chance of succeeding, it would appear, because the combined system will be able to compete completely in North American lanes with CN.

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Posted by longhorn1969 on Wednesday, September 15, 2021 9:49 PM

Lithonia Operator

Here's Trains' article.

https://www.trains.com/trn/news-reviews/news-wire/canadian-national-drops-pursuit-of-kcs-clearing-way-for-canadian-pacific-kcs-merger/

How long do you think the STB will take to make a ruling on this? Do folks think it will eventually get approved?

I see where the CSX-PanAm deal has hit snags.

 

 

I hope not, I hope the DOJ or STB shoots it down. Biden Administration talks about wanting competion, you can't have that and let the North American market loose another major railroad.

Its like the airlines now stating they can make profits because they merged. No,its because they stopped chasing market share and found yield discipline that had been preache for the past 30 years.

Yeah, I hope the Biden adminstration blows this thing up. The present stockholders will get their payday and the CP would have to divest of KCS back on the market.

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Posted by MidlandMike on Thursday, September 16, 2021 8:04 PM

longhorn1969
I hope not, I hope the DOJ or STB shoots it down. Biden Administration talks about wanting competion, you can't have that and let the North American market loose another major railroad.

CP and KCS didn't overlap or compete against each other.  How does this merger lessen competion?

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Posted by kgbw49 on Friday, September 17, 2021 8:00 AM
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Posted by kgbw49 on Friday, September 17, 2021 8:04 AM
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Posted by Juniata Man on Friday, September 17, 2021 10:19 AM

MidlandMike

 

 
longhorn1969
I hope not, I hope the DOJ or STB shoots it down. Biden Administration talks about wanting competion, you can't have that and let the North American market loose another major railroad.

 

CP and KCS didn't overlap or compete against each other.  How does this merger lessen competion?

 

 

If CPKC closes existing interchanges with other railroads, that could have an anticompetitive impact.

A specific concern I have involves traffic moving from current KCS served points to destinations in Canada currently open to interswitching. Since CP can serve many CN switched businesses in Canada through interswitching, closure of KCS / CN interchanges in the US would have a definite anticompetitive impact on traffic moving in these lanes currently. It would force traffic off the KCS / CN routing and onto a CPKC route. And in the railroad world, same as in the real world, not having a choice of service provider translates into a higher cost.

In line with that; CPKC could also choose to maintain these interchanges but, price traffic moving over them in such a manner the interchange is effectively no longer an option. In other words, CPKC could set interline revenue requirements so high it prices the CN route out of existence.

CW

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Posted by MidlandMike on Friday, September 17, 2021 8:54 PM

Juniata Man
... In line with that; CPKC could also choose to maintain these interchanges but, price traffic moving over them in such a manner the interchange is effectively no longer an option. In other words, CPKC could set interline revenue requirements so high it prices the CN route out of existence.

It seems the only interchange that would be effected is the St. Louis/Springfield area (the more southerly interchanges would leave KCS short-hauling themselves.)  CPKC says they will maintain interchanges.  STB seems to be interested in getting more into rate cases.  Overall I think CPKC will make a more balanced competition betweem CP and CN.  It will also make them possibly more competitive with UP and BNSF in that lane.

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Posted by Juniata Man on Saturday, September 18, 2021 6:58 AM

MidlandMike

 

 
Juniata Man
... In line with that; CPKC could also choose to maintain these interchanges but, price traffic moving over them in such a manner the interchange is effectively no longer an option. In other words, CPKC could set interline revenue requirements so high it prices the CN route out of existence.

 

It seems the only interchange that would be effected is the St. Louis/Springfield area (the more southerly interchanges would leave KCS short-hauling themselves.)  CPKC says they will maintain interchanges.  STB seems to be interested in getting more into rate cases.  Overall I think CPKC will make a more balanced competition betweem CP and CN.  It will also make them possibly more competitive with UP and BNSF in that lane.

 

 

Mike; Jackson, MS is the primary CN/KCS interchange currently for traffic to or from Canada.

And note that simply keeping an interchange open doesn't necessarily mean it will remain a viable interchange. CPKC will need to keep revenue requirements over these interchanges at the same competitive levels as at present. I'd be surprised if the Board doesn't set conditions along those lines though as I know several shipper organizations have expressed concern in that regard.

CW

 

 

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Posted by MidlandMike on Saturday, September 18, 2021 9:32 PM

I don't have problems with STB requiring keeping interchanges open, at least if it has reasonable usage.  Jackson maybe has competative advantage at the present, but if CPKC single service now has the advantage, then the competition landscape has changed, but all are still free to compete.  CPKC makes one more viable route from the Chicago area to the Gulf, in addition to CN, UP, and BNSF.  It's up to the STB to decide if the merger enhances that competition.

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