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Canadian Pacific Norfolk Southern Merger

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Posted by oltmannd on Saturday, January 23, 2016 1:40 PM

CP had another crazy good year.  What we don't know, is if they are "eating their own foot" to do it.  I'm not sure you can tease that out of a 10K or not.

The latest items that leave me slack-jawed:

EHH sounded surprised that this battle would be political.  He and Ackman called it a street fight.  Street fights have rules?  Not sure if this is arrogance of ignorance or just shooting from the hip.

CP, just now, hired a PR firm to help with this.  JUST NOW?  

CP seems to be surprised by all kinds of things that have happened.  

  • That the STB just won't take their interpretation of the rules at face value.  
  • That NS would fight back so hard and fast.  
  • That UP and BNSF wouldn't just shut up and stay on the sidelines because EHH says they have no reason to be involved.  
  • That the FRA might weigh in on this.
  • That so many large shippers would be against this.
  • That "white papers" full of qualitative opinions would not carry the day

So much of this would seem so obvious that I can hardly believe CP was so ill prepared for the fight they picked.  That really leaves arrogance or ignorance as the only answers.

Perhaps EHH wanted one more RR to run and Ackman smells money from all the NS real estate he thinks can be sold off?  Those two need to stop reading their own press releases...

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Posted by dakotafred on Friday, January 22, 2016 8:39 PM

BaltACD
 
schlimm

BaltACD:

You should spin for the pols.  Highest ever eps for 4th Q.  Today:  CP shares gained 11.62% while NSC dropped 2.11%.   This is based on investors' view that taking over a lagard like NSC was a poor use of CP capital. And NSC dropped because it is not a good investment now.  http://www.fool.com/investing/general/2016/01/22/why-canadian-pacific-railway-limited-usa-shares-po.aspx?source=eogyholnk0000001&utm_source=yahoo&utm_medium=feed&utm_campaign=article

 

 

Earnings, despite being records, did not live up to the analyst's expectations.

 

Maybe not, Balt, but I think it's fair to say CP performed better than most in an unexpectedly tough year. The dropoff in traffic was a surprise to everybody. In 2014 the rails were beaten up for trains that sat awaiting crews. They hired like crazy, and now have had to lay those same people off. (I know one of them.)

A bad business for those people and for the railroads, who invested a lot of money in training. I like to think we'll do better after November.   

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Posted by Ulrich on Friday, January 22, 2016 7:51 PM

Sometimes one has to ignore the anal-ysts...

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Posted by BaltACD on Friday, January 22, 2016 7:31 PM

schlimm

BaltACD:

You should spin for the pols.  Highest ever eps for 4th Q.  Today:  CP shares gained 11.62% while NSC dropped 2.11%.   This is based on investors' view that taking over a lagard like NSC was a poor use of CP capital. And NSC dropped because it is not a good investment now.  http://www.fool.com/investing/general/2016/01/22/why-canadian-pacific-railway-limited-usa-shares-po.aspx?source=eogyholnk0000001&utm_source=yahoo&utm_medium=feed&utm_campaign=article

Earnings, despite being records, did not live up to the analyst's expectations.

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Posted by tree68 on Friday, January 22, 2016 7:23 PM

schlimm
You should spin for the pols.

No reason both views can't be true.  If earnings are up 9% but they expected 10%, then earnings fell short...

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Posted by Ulrich on Friday, January 22, 2016 4:50 PM

CP stock up more than 10% today. NS stock down again..

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Posted by Lyon_Wonder on Friday, January 22, 2016 4:05 PM
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Posted by schlimm on Friday, January 22, 2016 4:01 PM

BaltACD:

You should spin for the pols.  Highest ever eps for 4th Q.  Today:  CP shares gained 11.62% while NSC dropped 2.11%.   This is based on investors' view that taking over a lagard like NSC was a poor use of CP capital. And NSC dropped because it is not a good investment now.  http://www.fool.com/investing/general/2016/01/22/why-canadian-pacific-railway-limited-usa-shares-po.aspx?source=eogyholnk0000001&utm_source=yahoo&utm_medium=feed&utm_campaign=article 

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Posted by Ulrich on Friday, January 22, 2016 3:30 PM

dakotafred

Today's statement by CP -- see Newswire -- sounds like Hunter is throwing in the towel. Can't say I'm sorry. While I greatly admire EHH, and it looks like NS really needs to pull up its socks -- to borrow a favorite phrase of John Kneiling's -- I don't think we want Canada poaching another U.S. railroad, to the possible advantage of Vancouver over U.S. ports and with long hauls to CP and CN rather than to UP and BNSF.

In addition, as a North Dakota resident, I can't forgive or forget all of Canada's monkey wrenching of water projects down here. (Obama's veto of XL, while stupid, for the wrong reasons, is appropriate payback.) Scroom.

 

 

If they change the name to "American Pacific" and funnel eatbound loads from Vancouver to the US east coast instead of Toronto/Montreal we should be ok though.. EHH is a red blooded American even if almost no one likes him. Maybe we need to throw in a couple of southerners into HQ  to further dilute  that canuck accent too..

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Posted by BaltACD on Friday, January 22, 2016 2:14 PM

Never too old to have a happy childhood!

              

BC2
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Posted by BC2 on Friday, January 22, 2016 1:13 PM

I believe the deal is dead. CP's stock has surged since their last conference call because investors are under the impression that they will give up on NS. The quote below indicates the sentiment of the investment community:

Letting go of Norfolk Southern would benefit Canadian Pacific stock by turning executives’ attention squarely toward running their railroad, wrote National Bank Financial’s Cameron Doerksen.

“Our fear is that CP management is consuming too much time and effort on fighting for the merger at a time when the company is facing its own volume-related challenges,” he wrote. “As such, we would view an abandoning of the merger effort as a potential positive for CP shares.”

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Posted by wanswheel on Thursday, January 21, 2016 10:05 PM
Excerpt from transcript of Canadian Pacific conference call, Jan. 21
 
Thomas Wadewitz (Analyst - UBS): Yes, good morning. I wanted to see if you could give some comments on productivity and headcount. I guess when you've had the strong improvement over the last couple years and certainly a lot of improvement in 2015 in operating metrics and then big reductions in headcount, everything kind of moving the right way in terms of the productivity. How much further is there to go in 2016? I don't know if that's kind of a -- maybe a velocity comment. But also headcount if you look sequentially, where we are in the fourth quarter, how much more that can go down when you look into 2016?
 
Hunter Harrison (CEO): Tom, let me make some comments on that and then Keith maybe can add to it if he would choose. There are -- if you go back once again where we started with the proxy contest we've taken I think between 6000 and 7000 people out of the count, which has been predominantly done -- a high percentage in the high 90s through attrition because we typically have an older workforce. And I think with the -- some of the operating initiatives that Keith mentioned earlier, we feel like that through some productivity gains and efficiencies, there are probably close to 1000 additional heads to come out potentially in 2016. So there's still room there. There is still more to accomplish.
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Posted by dakotafred on Thursday, January 21, 2016 8:20 PM

Today's statement by CP -- see Newswire -- sounds like Hunter is throwing in the towel. Can't say I'm sorry. While I greatly admire EHH, and it looks like NS really needs to pull up its socks -- to borrow a favorite phrase of John Kneiling's -- I don't think we want Canada poaching another U.S. railroad, to the possible advantage of Vancouver over U.S. ports and with long hauls to CP and CN rather than to UP and BNSF.

In addition, as a North Dakota resident, I can't forgive or forget all of Canada's monkey wrenching of water projects down here. (Obama's veto of XL, while stupid, for the wrong reasons, is appropriate payback.) Scroom.

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Posted by caldreamer on Thursday, January 21, 2016 4:59 PM

If you look at the maps, the better alternatives to CP taking over NS would be BNSF or UP getting NS and the other getting the one that is left.  The reasoning beingthe connections to the two eastern roads outside of the Chicago area would DEFINATLY aleviate a lot of the congestion.  Memphis, St Louis and Kansas City are three of the cities citie where trains moving east or west could run through to help unclog the Chicago bottleneck

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Posted by schlimm on Thursday, January 21, 2016 4:50 PM

CJtrainguy

 

 
schlimm

As I have said for years, I don't like EHH's ways.  But the CP, by the commonly used financial (and rail) metrics. is a more efficiently run business operation than NSC or CSX.

 

 

 

 

Is it truly more efficiently run or is it run to maximize profits pulled out this quarter by creating an unsustainable future?

 

Those metrics have been there many quarters.  Same was true when he was with CNR.  It's capitalism.   

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Posted by Electroliner 1935 on Thursday, January 21, 2016 3:14 PM

Do I see the shotguns being loaded. Its not duck season is it?

 

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Posted by Murphy Siding on Thursday, January 21, 2016 12:56 PM

BaltACD
 
schlimm
BaltACD
oltmannd
Ulrich
oltmannd
tree68
Victrola1

MOM!  They aren't playing fair!  I'm supposed to win!

I really don't get what CP is doing.  You'd think before they set sail on this venture, that they's have lined up their alllies.  Some shippers who would like their version of reciprocal switching.  Some politicians who's folk might be "winners" in the transaction.  Some considered positive opinions about STB outcomes.  And, at least a feel for what their peers might and might not do.

It's turning out they have exactly zero except for their sales pitch - and it's wonderfully devoid of actionable detail.  

Are they serious?

Good points Oltmannd, perhaps before they set sail on this venture they weren't expecting such strong headwinds. But I tend to agree, they should have lined up their allies in this and made some friends in the backrooms of Washington who would come out in support of such a merger. Maybe they purposely didn't, hoping that allies would materialize on their own  with the public announcement.

...and what have they been busy doing?  Writing white papers!  Yet another one...

http://www.cpr.ca/en/investors/cp-ns-combination-will-ease-congestion-in-key-chicago-rail-hub

with only a tiny bit more meat on it.  (I like the part where they say they can't figure out the interline merger benefits because they don't have access to NS's data.  That made me laugh!)

 

If you can't impress them with your 'brilliance'; baffle them with you bovine excrement and pile it on.

And if you cannot make a rational argument, pile on the nonsense or whatever your favorite childish euphemism is.

 

CP's assertions have all the force and effect of a political campaign speech and the nebulous promises they deliver.  BS is BS no matter the form or fourm it is presented in.

 

If we're discussing our take on the proceedings, then we have to allow that some folks see it differently than others.  Maybe in the objective world, things like this would be limited to making 'rational' arguments only. To me, that's narrowing it down to euclid terms, where you can offer your idea of 'rational' over and over until the cows come home and ask you to stop. As it's subjective, I feel it's quite realistic to suggest that it's BS if that's how you feel.

     I agree with BaltACD.  From what I've read from the CP camp, it is both walking like a duck and quacking like a duck.  Rationally, I suppose we'll have to wait and see if it flies like a duck to be sure.

Thanks to Chris / CopCarSS for my avatar.

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Posted by CJtrainguy on Thursday, January 21, 2016 12:54 PM

schlimm

As I have said for years, I don't like EHH's ways.  But the CP, by the commonly used financial (and rail) metrics. is a more efficiently run business operation than NSC or CSX.

 

 

Is it truly more efficiently run or is it run to maximize profits pulled out this quarter by creating an unsustainable future?

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Posted by Norm48327 on Thursday, January 21, 2016 12:43 PM

schlimm

As I have said for years, I don't like EHH's ways.  But the CP, by the commonly used financial (and rail) metrics. is a more efficiently run business operation than NSC or CSX.

 

Also smaller, and, by inference, easier to micro-manage as EHH is wont to do.

Norm


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Posted by schlimm on Thursday, January 21, 2016 12:25 PM

As I have said for years, I don't like EHH's ways.  But the CP, by the commonly used financial (and rail) metrics. is a more efficiently run business operation than NSC or CSX.

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Posted by BaltACD on Thursday, January 21, 2016 9:11 AM

schlimm
BaltACD
oltmannd
Ulrich
oltmannd
tree68
Victrola1

MOM!  They aren't playing fair!  I'm supposed to win!

I really don't get what CP is doing.  You'd think before they set sail on this venture, that they's have lined up their alllies.  Some shippers who would like their version of reciprocal switching.  Some politicians who's folk might be "winners" in the transaction.  Some considered positive opinions about STB outcomes.  And, at least a feel for what their peers might and might not do.

It's turning out they have exactly zero except for their sales pitch - and it's wonderfully devoid of actionable detail.  

Are they serious?

Good points Oltmannd, perhaps before they set sail on this venture they weren't expecting such strong headwinds. But I tend to agree, they should have lined up their allies in this and made some friends in the backrooms of Washington who would come out in support of such a merger. Maybe they purposely didn't, hoping that allies would materialize on their own  with the public announcement.

...and what have they been busy doing?  Writing white papers!  Yet another one...

http://www.cpr.ca/en/investors/cp-ns-combination-will-ease-congestion-in-key-chicago-rail-hub

with only a tiny bit more meat on it.  (I like the part where they say they can't figure out the interline merger benefits because they don't have access to NS's data.  That made me laugh!)

 

If you can't impress them with your 'brilliance'; baffle them with you bovine excrement and pile it on.

And if you cannot make a rational argument, pile on the nonsense or whatever your favorite childish euphemism is.

CP's assertions have all the force and effect of a political campaign speech and the nebulous promises they deliver.  BS is BS no matter the form or fourm it is presented in.

Never too old to have a happy childhood!

              

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Posted by schlimm on Thursday, January 21, 2016 8:48 AM

BaltACD

 

 
oltmannd
Ulrich
oltmannd
tree68
Victrola1

MOM!  They aren't playing fair!  I'm supposed to win!

I really don't get what CP is doing.  You'd think before they set sail on this venture, that they's have lined up their alllies.  Some shippers who would like their version of reciprocal switching.  Some politicians who's folk might be "winners" in the transaction.  Some considered positive opinions about STB outcomes.  And, at least a feel for what their peers might and might not do.

It's turning out they have exactly zero except for their sales pitch - and it's wonderfully devoid of actionable detail.  

Are they serious?

Good points Oltmannd, perhaps before they set sail on this venture they weren't expecting such strong headwinds. But I tend to agree, they should have lined up their allies in this and made some friends in the backrooms of Washington who would come out in support of such a merger. Maybe they purposely didn't, hoping that allies would materialize on their own  with the public announcement.

...and what have they been busy doing?  Writing white papers!  Yet another one...

http://www.cpr.ca/en/investors/cp-ns-combination-will-ease-congestion-in-key-chicago-rail-hub

with only a tiny bit more meat on it.  (I like the part where they say they can't figure out the interline merger benefits because they don't have access to NS's data.  That made me laugh!)

 

If you can't impress them with your 'brilliance'; baffle them with you bovine excrement and pile it on.

 

And if you cannot make a rational argument, pile on the nonsense or whatever your favorite childish euphemism is.

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Posted by BaltACD on Wednesday, January 20, 2016 11:31 PM

oltmannd
Ulrich
oltmannd
tree68
Victrola1

MOM!  They aren't playing fair!  I'm supposed to win!

I really don't get what CP is doing.  You'd think before they set sail on this venture, that they's have lined up their alllies.  Some shippers who would like their version of reciprocal switching.  Some politicians who's folk might be "winners" in the transaction.  Some considered positive opinions about STB outcomes.  And, at least a feel for what their peers might and might not do.

It's turning out they have exactly zero except for their sales pitch - and it's wonderfully devoid of actionable detail.  

Are they serious?

Good points Oltmannd, perhaps before they set sail on this venture they weren't expecting such strong headwinds. But I tend to agree, they should have lined up their allies in this and made some friends in the backrooms of Washington who would come out in support of such a merger. Maybe they purposely didn't, hoping that allies would materialize on their own  with the public announcement.

...and what have they been busy doing?  Writing white papers!  Yet another one...

http://www.cpr.ca/en/investors/cp-ns-combination-will-ease-congestion-in-key-chicago-rail-hub

with only a tiny bit more meat on it.  (I like the part where they say they can't figure out the interline merger benefits because they don't have access to NS's data.  That made me laugh!)

If you can't impress them with your 'brilliance'; baffle them with you bovine excrement and pile it on.

Never too old to have a happy childhood!

              

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Posted by oltmannd on Wednesday, January 20, 2016 2:17 PM

Ulrich

 

 
oltmannd
 
tree68

 

 
Victrola1

 

 

MOM!  They aren't playing fair!  I'm supposed to win!

 

 

 

I really don't get what CP is doing.  You'd think before they set sail on this venture, that they's have lined up their alllies.  Some shippers who would like their version of reciprocal switching.  Some politicians who's folk might be "winners" in the transaction.  Some considered positive opinions about STB outcomes.  And, at least a feel for what their peers might and might not do.

It's turning out they have exactly zero except for their sales pitch - and it's wonderfully devoid of actionable detail.  

Are they serious?

 

 

 

 

Good points Oltmannd, perhaps before they set sail on this venture they weren't expecting such strong headwinds. But I tend to agree, they should have lined up their allies in this and made some friends in the backrooms of Washington who would come out in support of such a merger. Maybe they purposely didn't, hoping that allies would materialize on their own  with the public announcement.

 

...and what have they been busy doing?  Writing white papers!  Yet another one...

http://www.cpr.ca/en/investors/cp-ns-combination-will-ease-congestion-in-key-chicago-rail-hub

with only a tiny bit more meat on it.  (I like the part where they say they can't figure out the interline merger benefits because they don't have access to NS's data.  That made me laugh!)

-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/

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Posted by Victrola1 on Wednesday, January 20, 2016 12:42 PM

The Opportunity to Alleviate Congestion in Chicago

 

Canadian Pacific's latest white paper outlines how CP's proposed combination with Norfolk Southern Corp. (NS) will alleviate congestion in the key rail hub of Chicago.

By diverting hand-offs between railways to underutilized hubs outside the city and reducing processing in yards within the city, there is a real opportunity to make a meaningful contribution to address the congestion in Chicago while significantly improving service for diverted traffic. The result is a stronger and more resilient rail network better able to avoid and recover from future service disruptions.

 

http://www.cpr.ca/en/investors-site/Documents/chicago-white-paper.pdf

Today's news from the front in the white paper war. 

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Posted by kgbw49 on Wednesday, January 20, 2016 4:59 AM

2156 will go back and 611 will go cold with no place to run if CP takes over.

Count on it.

The only way they move 2156 back on its own wheels is if they are legally obligated to do so.

Otherwise, it may be Schnabel car time - CSX would not move 1309 on its own wheels over its system. CP with its aversion to steam would probably require someting similar to return the 2156 to St. Louis.

One important thing to remember is that both UP and BNSF are more hospitable to steam, and if the balloon goes up on the final merger consolidation round, those two entities will end up owning most, but not all, of the track east of the Mississippi.

We all know that if a sale of a company is on, there is nothing preventing a competing offer. We all know if the offer is more lucrative, the board of the selling company will take the bigger offer. We all know who has the most cash and financing firepower to bring to the battle.

If the CP proxy battle is won and CP is successful in installing a board majority at NS that is willing to sell the company, BNSF has already indicated that they will step in at that point. BNSF has indicated that they are not afraid of mergers and that (paraphrasing) merger is a great opportunity, but they don't think the time is right. But they will step in if their hand is forced, per their own words.

When BNSF steps in, UP will be forced to step in from an economic competitiveness standpoint.

Berkshire Hathway has $66 billion cash on hand. A move by BNSF will likely be "self-financed" within the Berkshire Hathway umbrella.

That is massive financial firepower that can be brought to the battle.

And UP, while not having as large of a trove of cash behind them clearly can support much more financing for a purchase than CP.

CP will not outbid BNSF or UP if either one decides they have to step in and buy NS.

CP will end up being the "increased competition" provider in the end game, much as BNSF was given trackage rights Denver-Stockton and Bieber-Stockton to provide competition to the UP on those routes as part of the UP-SP combination.

CP will end up getting access to the Gulf of Mexico for their export grain trains, access to Atlanta for their container trains coming from Vancouver, the right to run their CBR trains from North Dakota to the Philly/NJ/NY northeast, container trains to the Northeast, etc. They might even end up owning some track. But the lion's share of NS will end up annexed to one of the two big western roads if the proxy battle does go forward.

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Posted by CPRcst on Wednesday, January 20, 2016 12:35 AM

EHH would almost certainly return 2156 to it's owner if the contract allows; if not he would just let it sit in the engine house as he has the CP2816. Hunter has not use for steam. 

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Posted by Falcon48 on Tuesday, January 19, 2016 10:19 PM

BaltACD
 
Falcon48
 

A 'new' company does not feel any incumbent responsibility to honor agreements made by a predecessor company, if it does not meet what the new company wants to do.  No lawyer worth his salt will admit that they can't break any agreement any time they want it broken without repercussions - thats shyster 101.

What CP would WANT TO DO, is the big question.

 

  A lawyer who operates on the principle that he or she can "break any agreement at any time they want it broken without repercussions" is an absolute fool and is heading for a big time fall. 

With respect to the NS agreement, the agreement probably specifically provides what happens when it terminates, including provisions on return of the locomotive.  It also probably allows NS to cancel the agreement on fairly short notice. If so, a merged company would, of course, have the same rights and obligations.

 

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Posted by BaltACD on Tuesday, January 19, 2016 9:42 PM

Falcon48
S. Connor

I apologise in advance if this has already been brought up or discussed, but reading through 12 pages of posts to check is not something I have the time to do!

My curiosity is that if NS and CP do end up merging before 2020, how will this affect the 5 year loan of the N&W Y6a #2156? No. 2156 is loaned to NS; and if the merger goes through and NS ceases to exist in a legal sense, where will this leave the locomotive, being loaned to a no-longer existing corporation?

Could such a situation prevent the locomotive from returning to St. Louis, the situation being a legal knot?                                                                            We all saw what happened to the DL&W #952, victim of a legal technicality that made the court system side with keeping her in St. Louis.

I'm not familiar with the agreement covering the 2156.  However, as a general matter, when two corporations merge, the merged company assumes the responsibilities of the prior companies.  In other words, a merged CP-NS would succeed to the rights and obligations of the NS agreement. Of course, the underlying agreement covering the 2156 may provide something different, but there's no apparent reason why it would.

I'm also not familiar with the DK&W 952 incident you mention.  I suspect, however, that it didn't involve the issue of whether a merged company is responsible for the obligations of the prior companies.

A 'new' company does not feel any incumbent responsibility to honor agreements made by a predecessor company, if it does not meet what the new company wants to do.  No lawyer worth his salt will admit that they can't break any agreement any time they want it broken without repercussions - thats shyster 101.

What CP would WANT TO DO, is the big question.

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Posted by Falcon48 on Tuesday, January 19, 2016 9:25 PM

S. Connor

I apologise in advance if this has already been brought up or discussed, but reading through 12 pages of posts to check is not something I have the time to do!

 

My curiosity is that if NS and CP do end up merging before 2020, how will this affect the 5 year loan of the N&W Y6a #2156? No. 2156 is loaned to NS; and if the merger goes through and NS ceases to exist in a legal sense, where will this leave the locomotive, being loaned to a no-longer existing corporation?

Could such a situation prevent the locomotive from returning to St. Louis, the situation being a legal knot?                                                                            We all saw what happened to the DL&W #952, victim of a legal technicality that made the court system side with keeping her in St. Louis.

 

I'm not familiar with the agreement covering the 2156.  However, as a general matter, when two corporations merge, the merged company assumes the responsibilities of the prior companies.  In other words, a merged CP-NS would succeed to the rights and obligations of the NS agreement. Of course, the underlying agreement covering the 2156 may provide something different, but there's no apparent reason why it would.

I'm also not familiar with the DK&W 952 incident you mention.  I suspect, however, that it didn't involve the issue of whether a merged company is responsible for the obligations of the prior companies.

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