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Canadian Pacific Norfolk Southern Merger

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Posted by JAMES MARRINER on Thursday, November 19, 2015 10:58 PM
We don't need a foreign enity running an American railroad. William Mahone is doing somersaults in his tomb.
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Posted by Victrola1 on Friday, November 20, 2015 7:24 AM

Canadian Pacific's chief executive said Thursday he remains optimistic about completing a merger with Norfolk Southern but executives at the Virginia-based railroad haven't been willing to discuss the idea at length.....


Read more here: http://www.centredaily.com/news/business/article45509604.html#storylink=cpy

 

Harrison said shareholders will be the ones who decide whether the deal moves forward, but he hopes he'll get a chance to sit down with Norfolk Southern executives.

"It's hard to resolve issues if you don't talk," Harrison said.    

http://www.centredaily.com/news/business/article45509604.html

If NS does not wish to talk with Harrison, then what? 

 


Read more here: http://www.centredaily.com/news/business/article45509604.html#storylink=cpy
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Posted by n012944 on Friday, November 20, 2015 7:43 AM

Victrola1

 

If NS does not wish to talk with Harrison, then what? 

 


Read more here: http://www.centredaily.com/news/business/article45509604.html#storylink=cpy
 

 

The CP then has to try to have NS stockholders vote in new members to the board of directors.  These would be people who want to talk merger with the CP.

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Posted by schlimm on Friday, November 20, 2015 8:15 AM

EHH on Bloomberg:  He says today that NS would not say much to him face to face.  He will communicate with Squires by e-mail today, looking at "driving shareholder value" concerns.  He will not put a public number on that, but says efficiencies are the most important benefit.  He has reached out to the major shareholders only so far, individually.  Debt: take on $14 billion in new debt to buy NS - total meger cost is $28 billion.  He sees serious problems in east with infrastructure.  By merging end to end, they can create capacity by bypassing Chicago.   He sees this as a great opportunity to improve NS's higher (than CP's) operating ratio.  If they bypass the NS CEO, a voting trust would be established and putting in place new efficiencies, and then maybe getting STB approval in 2 years.  He says he will see it through to completion and not retire until maybe 2018.   Very interesting guy.

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Posted by wanswheel on Friday, November 20, 2015 9:50 AM
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Posted by Ulrich on Friday, November 20, 2015 10:07 AM

Harrison may have to tighten the screws the way he and Ackman did at CP. Maybe the promise of another nuclear winter is in the offing..

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Posted by schlimm on Friday, November 20, 2015 10:24 AM

Ulrich

Harrison may have to tighten the screws the way he and Ackman did at CP. Maybe the promise of another nuclear winter is in the offing..

 

Well, that could be.  But he seemed to place a lot of the efficiencies to be gained after merger by bypassing the Chicago bottlenecks.

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Posted by kgbw49 on Friday, November 20, 2015 10:35 AM

You have to think NS is on the phone to BNSF and UP and-or vice-versa.

Berkshire Hathaway do a 50% cash and 50% stock deal at a price 15% higher and still have $30 billion or so in the bank and the new company would have no new debt to service.

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Posted by schlimm on Friday, November 20, 2015 10:49 AM

Why would either BNSF or UP want to get into a bidding war for a somewhat distressed railroad like NS (or CSX) now?  

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Posted by carnej1 on Friday, November 20, 2015 11:19 AM

kgbw49

You have to think NS is on the phone to BNSF and UP and-or vice-versa.

Berkshire Hathaway do a 50% cash and 50% stock deal at a price 15% higher and still have $30 billion or so in the bank and the new company would have no new debt to service.

 

Warren B. is extremely savvy and I bet would see that such a merger would not be approved at the moment..Keep in mind B-H had to sell a large block of NS stock to gain approval for the acquisition of BNSF.

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Posted by BaltACD on Friday, November 20, 2015 11:39 AM

My take is that this is Ackman playing pump & dump tactics to increase his Pershing Capital coffers.

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Posted by Murphy Siding on Friday, November 20, 2015 12:34 PM

schlimm

Why would either BNSF or UP want to get into a bidding war for a somewhat distressed railroad like NS (or CSX) now?  

 

Probably for the same reason that every other merger went down that road- to keep the other guy (CN) from getting the perceived big advantage over them.

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Posted by Los Angeles Rams Guy on Friday, November 20, 2015 12:36 PM

kgbw49

You have to think NS is on the phone to BNSF and UP and-or vice-versa.

Berkshire Hathaway do a 50% cash and 50% stock deal at a price 15% higher and still have $30 billion or so in the bank and the new company would have no new debt to service.

 

Agree.  NO WAY either BNSF or UP let this all go down without a fight.

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Posted by Murphy Siding on Friday, November 20, 2015 12:55 PM

schlimm
 
 

  

Well, that could be.  But he seemed to place a lot of the efficiencies to be gained after merger by bypassing the Chicago bottlenecks.

 

  Just thinking out loud here-

Harrison thinks there are efficiencies to be gained after merger by bypassing the Chicago bottlenecks...ok

If the two merged, Canadian Southern would gain these efficiencies and that would improve the bottom line.

If the efficiencies that could be gained are from the CN part of the operation, then CN could gain those without NS's asistance.

If CN could gain those efficiencies on their own, there's no reason to merge with NS.

The merger must be based on some other logic.

NS management doesn't seem real keen on merging.  They act like it's more like a take over.


     Mergers and aquisitions are big right now in every industry.  We're seeing it a lot right now in my industry, building materials.  Several vendors of ours have recently been through it.  We've also had an upfront and personal look at an aquisition situation.  My take is this:  The taker sells the idea by saying that nothing will change about the old company, other then a few efficiencies that are to be put in place, for the betterment of the company as a whole.  The takee then gets gutted.  All the now redundant positions are eliminated and the employees of the takee company end up on the short end of the stick.

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Posted by Victrola1 on Friday, November 20, 2015 1:23 PM

NS is not willing to talk. Will Hunter Harrison mount a hostile take over attack?

Let slip the dogs of war. It may prove quite a show.

 https://www.youtube.com/watch?v=yyeKYQdYISg

 

 

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Posted by schlimm on Friday, November 20, 2015 1:31 PM

Murphy Siding
Harrison thinks there are efficiencies to be gained after merger by bypassing the Chicago bottlenecks...ok If the two merged, Canadian Southern would gain these efficiencies and that would improve the bottom line. If the efficiencies that could be gained are from the CN part of the operation, then CN could gain those without NS's asistance. If CN could gain those efficiencies on their own, there's no reason to merge with NS. The merger must be based on some other logic.

CP (not CN) can only gain the efficiencies of bypassing Chicago (and others which he did not specify) by acquiring NS.

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Posted by jeffhergert on Friday, November 20, 2015 1:45 PM

dakotafred

I wonder where MILW gets his info that Hunter Harrison is "on his last legs age-wise and won't be in the job of CEO much longer."

Harrison had surgery earlier this year.  There was a rumor on another site that a past round of cancer had reoccurred.  Nothing more ever said about it, although EHH himself said his doctor told him to change his lifestyle.  (Normal for doctors.)

I'm of the opinion that this is all to bump up the stock price so the big investors can dump shares.  I wouldn't think there is that much CP-NS interchange that a merger would improve service.  I wonder if all the discussions, more so than when EHH talked about acquiring CSX, isn't because NS has more PR/railfan friendly projects.

On another site there was mention of a rumor on investor blogs that maybe CP is actually getting ready to put itself up for sale.  The ultimate dump I suppose.  Unfortunately there were no links to said blogs, so just rumor FWIW.

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Posted by Murphy Siding on Friday, November 20, 2015 1:48 PM

schlimm
 
Murphy Siding
Harrison thinks there are efficiencies to be gained after merger by bypassing the Chicago bottlenecks...ok If the two merged, Canadian Southern would gain these efficiencies and that would improve the bottom line. If the efficiencies that could be gained are from the CN part of the operation, then CN could gain those without NS's asistance. If CN could gain those efficiencies on their own, there's no reason to merge with NS. The merger must be based on some other logic.

 

CP (not CN) can only gain the efficiencies of bypassing Chicago (and others which he did not specify) by acquiring NS.

 

  Oops!  I meant CP.  You know, those Canadian railroads all look alike to me.Embarrassed

     Why is taking over NS the only way?  Wouldn't the trains run on the same tracks they do now, but just under different ownership?

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Posted by BaltACD on Friday, November 20, 2015 2:02 PM

Murphy Siding
schlimm
Murphy Siding

CP (not CN) can only gain the efficiencies of bypassing Chicago (and others which he did not specify) by acquiring NS.

  Oops!  I meant CP.  You know, those Canadian railroads all look alike to me.Embarrassed

     Why is taking over NS the only way?  Wouldn't the trains run on the same tracks they do now, but just under different ownership?

A combined ownership can utilize different classification and routing stragegies to operate the same tracks.  How good or bad those stragegies would be would be the proof for the deal being good or bad.

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Posted by VerMontanan on Friday, November 20, 2015 3:01 PM

 

CP may never buy NS, but this will certainly set a record for the number of NEWSWIRE articles and blogs about one topic.

The CP acquisition of NS or anyone else has nothing to do with anything except the ego of Mr. Harrison. This is not meant to be a defamatory statement. He certainly molded CN into a powerhouse railroad, and its stockholders love him for it even if some in the railfan community do not. With regard to CP, he has "fixed" the problem as he was enlisted to do, but now he has reached a point where there is little else he can do with CP to create his legacy with that railroad. There is no EJ&E or BCOL or DM&IR to buy, and CP has a vastly inferior route structure to CN. So, the only thing that is left is to acquire another Class I. And since CSX was courted for awhile, it looks like it pretty much doesn't matter which one.

 

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Posted by Leo_Ames on Friday, November 20, 2015 9:04 PM

In the man's defense, there is a lot about him that I'm aware of that I think most railroaders and railfans alike would appreciate. For instance, he's known for being a hands-on manager that is actually familiar with many of the routine tasks his employees must handle out in the field.

And while I'm unaware if he brought this policy forward to CPR, managers at Canadian National had to be qualified as engineers and/or conductors and work in the field on weekends a certain number of times a year in order to better familiarize themselves with the challenges at hand and thus become better managers in the end. 

And I've largely only seen positive things from those that profess to be operating employees on the IC when it comes to scheduling most movements on the system and allow most of them to return to their home terminal each day. That was a Hunter innovation, if I'm not mistaken.

I think he puts short-term gains on the balance sheet ahead of medium/long-term goals, his efficency extremes negatively affected the ability of Canadian National and now CPR to be as customer focused as many of their competitors, and for whatever reason there's a culture of fear under his leadership that doesn't seem as prevalent on other Class 1's.

But it's also not all bad...

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Posted by Paul_D_North_Jr on Friday, November 20, 2015 9:05 PM

Victrola1
Canadian Pacific's chief executive said Thursday he remains optimistic about completing a merger with Norfolk Southern but executives at the Virginia-based railroad haven't been willing to discuss the idea at length.....

Read more here: http://www.centredaily.com/news/business/article45509604.html#storylink=cpy

Harrison said shareholders will be the ones who decide whether the deal moves forward, but he hopes he'll get a chance to sit down with Norfolk Southern executives.

"It's hard to resolve issues if you don't talk," Harrison said.    

http://www.centredaily.com/news/business/article45509604.html

If NS does not wish to talk with Harrison, then what? 


Read more here: http://www.centredaily.com/news/business/article45509604.html#storylink=cpy

What part of "No" or "Not interested" does he not understand ?
 
Why does he apparently think that anyone should have to talk with him ?
 
Perhaps he's not saying anything they want to hear. 
 
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"This Fascinating Railroad Business" (title of 1943 book by Robert Selph Henry of the AAR)
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Posted by Paul_D_North_Jr on Friday, November 20, 2015 9:11 PM

schlimm
[snipped - PDN] . . . He [EHH] will communicate with Squires by e-mail today, looking at "driving shareholder value" concerns.  He will not put a public number on that, but says efficiencies are the most important benefit.  . . . By merging end to end, they can create capacity by bypassing Chicago.   He sees this as a great opportunity to improve NS's higher (than CP's) operating ratio. . . . 

Not disputing this summary, but taking it as accurate and responding to EHH's statements:

"Mr. Harrison: Show us the money - if you can . . . ?". 

- Paul North. 

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Posted by Paul_D_North_Jr on Friday, November 20, 2015 9:16 PM

VerMontanan
[snipped - PDN] . . . He certainly molded CN into a powerhouse railroad, . . .

With all due respect, this is like an "urban legend". 

The great improvement in CN - including and especially the much lower Operating Ratio - all happened when Paul Tellier was CEO.  I know, I owned stock in it then (and still do). 

Harrison inherited it, improved it a little bit, and maintained it - but no, he did not do it, and most certainly not by himself.  You could look it up (or borrow my copies of the annual reports).

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Posted by Murphy Siding on Friday, November 20, 2015 9:24 PM

BaltACD

 

 
Murphy Siding
schlimm
Murphy Siding

CP (not CN) can only gain the efficiencies of bypassing Chicago (and others which he did not specify) by acquiring NS.

  Oops!  I meant CP.  You know, those Canadian railroads all look alike to me.Embarrassed

     Why is taking over NS the only way?  Wouldn't the trains run on the same tracks they do now, but just under different ownership?

 

A combined ownership can utilize different classification and routing stragegies to operate the same tracks.  How good or bad those stragegies would be would be the proof for the deal being good or bad.

 

 And that can't be done between different railroads without one taking over the other one?

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Posted by dakotafred on Friday, November 20, 2015 9:57 PM

My, it was instructive to watch Harrison on Bloomberg today. He hardly looked or sounded enfeebled by age, as one or two on here have suggested (thinking wishfully?) that he is. Equally specious -- or at least undemonstrated -- is the claim that this merger is driven by his "ego" rather than his view of industry necessities.

What I love about Harrison, besides his documented accomplishments, is that he is the first railroad executive in 50-60 years who reflects in his persona, and the media attention he receives, the rails' rightful importance and place in our economic life.

Nobody since possibly Al Perlman, who was hobbled by regulation from getting as far as Harrison has, has made the media and so the public sit up and pay attention like EHH.

I hope to heaven he's still on the scene in 2018 and beyond.  

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Posted by schlimm on Saturday, November 21, 2015 7:31 AM

dakotafred
My, it was instructive to watch Harrison on Bloomberg today. He hardly looked or sounded enfeebled by age, as one or two on here have suggested (thinking wishfully?) that he is. Equally specious -- or at least undemonstrated -- is the claim that this merger is driven by his "ego" rather than his view of industry necessities.

I had the same thought.  It is apparent many on here did not actually watch EHH on Bloomberg.

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Posted by oltmannd on Saturday, November 21, 2015 7:31 AM

Hunter is still yapping about this because he wants shareholders to pressure NS mgt.  Its more interesting that he's spending so much time talking about this than what he actually says.

I'd guess the next step would be to up the ante to keep the pressure on.  I suppose there is a point at which BNSF or UP would jump in.  I'd guess they are just waiting to see if NS can sucessfully stiff arm CP before they have anything to say.

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Posted by kgbw49 on Saturday, November 21, 2015 9:41 AM

IHB has been discussed in this thread as one artery to connect the CP and NS lines in Chicago and thereby theoretically reduce congestion (although trains would be travelling through the same railroad "intersections" that they do now).

Another potential actual bypass of Chicago for southeast-bound grain and East Coast-bound ethanol trains from Iowa and southern Minnesota could be over the IAIS from the Quad Cities to either Peoria or Streator. CP shows the IAIS as a "Principal Shortline Connection" on their system map, and in the NS Annual Report, the map therein shows IAIS as a trackage/haulage portion of the NS network all the way to Des Moines (which is different from the NS web site map).

BNSF was reported in News Wire several months ago as transferring some East Coast oil trains to CSX at Smithboro, IL, which is on the Big Four east of St. Louis, so something similar is already being done.

It would be another possible "mighty fine" gateway - it just may increase train frequency on The Rock Island line.

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Posted by Murphy Siding on Saturday, November 21, 2015 10:43 AM

wanswheel

Excerpt from The Globe and Mail, Nov. 9

http://www.theglobeandmail.com/report-on-business/canadian-pacific-said-to-explore-norfolk-southern-takeover/article27176306/

Benoit Poirier, an equities analyst with Desjardins Capital Markets, noted................................ Mr. Harrison has made strides to improve CP’s efficiency and profitability. Building a better rail network and applying his operational model to the underperforming Norfolk Southern.................... 

 What is Harrison's operational model that is so different from everybody else?

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