I'd think it unlikely that they could have decided on a merger plan than quickly in response to something like that? My guess is it has been in the works for some time.
I wouldn't panic about your last chance to shoot pics of KCS stuff, given there's still engines (and cabooses) wearing Soo Line paint in use after all these years.
Hey Ed, good to see you!
John, my thought would be that CP now knows Keystone XL is dead, and they see the opportunity to increase shipments of Alberta and North Dakota oil to Texas.
nanaimo73 I believe CP acquiring KCS at this time is a result of President Biden killing the Keystone XL pipeline.
I believe CP acquiring KCS at this time is a result of President Biden killing the Keystone XL pipeline.
This Bitumen deal was in the works before anyone knew that Biden would be elected. The contract was signed in October and had been in negotiation for several months. The trains haven't started moving yet because USD Group's facility in Port Arthur to steam and empty the tank cars won't be finished until June 2021.
Dale:
Great point....and welcome back! Missed your commentary.
Ed
https://globalnews.ca/news/7715550/cp-rail-kcs-bitumen-transport/
You are correct, it normally takes quite a while for the STB to rule on any docket. With the Covid slowdown do not expect any decision for a long time.
Caldreamer
The official STB filing hit late Monday morning (Docket FD-36500)...The usual whiners have queue'd-up to object. The interesting part will be when the other railroads and Justice start filing their remarks.
STB "cleared the decks" for this thing. Covid and limited staffing is going to have an effect on what comes next. (a project I am working on got parked for a while while they scramble to set this thing up and get it running)... It would appear reaction time and responses are going to be a dragged-out affair until Washington DC's internal everyday machinery can get back to new-normal after vaccinations happen.
I cannot see the government approving CP/KCS buying a company like J. B. Hunt since that would shut out other railroads moving north south traffic out of Chicago and KC. UP and BNSF run from Chicago to KC, Memphis, New Orleans, into Texas and Mexico. OOPS, restraint of compteition for my shipment!!!
Will be interesting to see how CN responds. They currently interchange with KCS and will probably want to continue that relationship post CP- KCS merger.
Lots of other opportunites that don't involve a merger with another railroad.. like perhaps buying an intermodal marketing company or a carrier like JB Hunt. This would likely sidestep the difficulty of merging two class 1 railroads while buying into new markets and into the retail part of the business. A class 1 railroad and JB Hunt merger? Wow.. that would be transformative!
ns145CP's KC-Chicago and KC-Twin Cities routes are very circuitous as well as capacity-constrained.
With Chicago to Springfield, IL trackage rights they have a second line into KC from the upper Midwest. My guess is they might set that up as well. Time will tell.
daveklepper CP's main competitor (other than trucks) is CN. CP's move can be viewed as an over-due defensive move against CN's taking control of IC. And CN has yet to develop full use of that move.
CP's main competitor (other than trucks) is CN. CP's move can be viewed as an over-due defensive move against CN's taking control of IC. And CN has yet to develop full use of that move.
Agree 100%. CP executes faster with it's plans vs CN.
MP173Does anyone know how much moves internationally between Mexico and US? Best case scenario, how much of that would CP gain? Does that justify the price paid?
Um, I agree that is all the press mentioned in their articles. However, CP just gained the full shipment of oil from well to refinery for North Dakota and Tar Sands Project in Alberta. Additionally, KCS had deals with BNSF to West Coast ports in United States and add to that the Mexican Pacific Ports. Plus you also have the Canadian Auto Plants pulling parts out of Mexico. Not to mention grain shipments to Gulf Coast Ports like CN has. I think it will be a fairly substantial boost to revenue over the next 10 years.
They also stated a chunk of the acquisition debt is temporary and will be gone in 4-5 years. So look for some asset sales with ancillary properties KCS has. I would guess they would sell the Panama Canal Railway for starters.
kgbw:That was a great analysis.
One must remember that Berkshire Hathaway purchased BNSF when it was on sale. The year 2009 was a great time to purchase great companies. I keep thinking of Warren Buffett's famous quote - "it is better to buy a great company at a good price rather than a good company at a great price." One must wonder if CP is buying a good company at a steep price. The timing is the opposite of 2009. Not much is on sale.
Does anyone know how much moves internationally between Mexico and US? Best case scenario, how much of that would CP gain? Does that justify the price paid?Ed
Back in 2009, Berkshire Hathaway bought BNSF in the depths of the Great Recession for $44 billion. In 2009 BNSF earned $2.0 billion Net Income on $14.1 billion in Revenue.
Twelve years later, Berkshire Hathaway has received more in net profits from BNSF than it paid for the railroad. And they still own the railroad. Warren Buffett is playing with house money from here on out. Annual Net Income has increase to over $5 billion in a COVID-19 year and should exceed that considerably in future years.
If you take the $2 billion in 2009 Net Income divided by the $44 billion investment, BNSF was expecting at least 4.5% return on their $44 billion investment in the next year. BNSF quickly shot up to the $4 billion+ range of net income, and Berkshire Hathaway has been earning 10%+ annually on their $44 billion investment.
CP is paying $29 billion for a railroad that had $2.6 billion in Revenue and $619 million in Net Income in 2020. If you take the KCS $619 million 2020 Net Income and divide it by $29 billion, KCS would be expecting at least 2.1% return on their $29 billion investment in the next year. At just that rate it would take a long time for CP to earn back their original $29 billion investment.
This tells me that CP is buying at the high end of the market and it will take them more time for them to make their money back compared to BNSF.
Granted, CP is expecting synergies to grow net income, but it looks to me like they would need to have KCS contribute about $2.9 billion annually to Net Income to earn their investment back in the same time frame as BNSF did.
If there is $780 million in synergies, as referenced in the CP press release on the merger, adding that to $619 KCS Net Income in 2020 should be at least $1.399 billion in KCS-acquisition-generated contribution to Net Income in the first year of merged operations. That would get the time frame to CP making it's money back to 21 years, which is a shorter time frame but still many more years than it took Berkshire Hathaway to make its money back.
Perhaps that is why the CP stock price is down.
Granted, there is more at play here than CP getting their investment back, such as stock appreciation to enable exercising stock options, but relative purchase price and payback periods are also factors.
CPKC will most assuredly have Net Income each year, but it seems they have some heavy lifting to do to make back their $29 billion investment in as short a time frame as Berkshire Hathaway made back their $44 billion investment.
Of course, that is the goal of the merger and I hope they have great success in doing just that.
jeffhergert kgbw49 Given the potential for increased traffic from Canada to Mexico through KC, does anyone have any thoughts as to where 15,000-foot sidings can be installed between La Crescent, MN and Bettendorf, IA? I'd be more worried about the line south of Bettendorf. That's going to be the wink link in the chain. It's an up and down railroad along much of the route in southern Iowa. The eastward grade out of Ottumwa was a regular helper grade (maybe the only one on the MILW east of the mountains) in steam days. I think something like 1.8%. One dispatcher in his memoirs (J. F. Frana, "Trains don't Fly") called Ottumwa "Hog Back Hollow." A large section between Cotter (a siding west of Muscatine) and (IIRC) Laredo, MO is unsignalled. Signalling is possibly a mute point with PTC. CPRS and it's predecessors back to the MILW made it work. Still, as someone on one of my e-mail groups suggested the MILW probably should've looked at taking the entire exGolden State route in southeastern Iowa. Jeff
kgbw49 Given the potential for increased traffic from Canada to Mexico through KC, does anyone have any thoughts as to where 15,000-foot sidings can be installed between La Crescent, MN and Bettendorf, IA?
Given the potential for increased traffic from Canada to Mexico through KC, does anyone have any thoughts as to where 15,000-foot sidings can be installed between La Crescent, MN and Bettendorf, IA?
I'd be more worried about the line south of Bettendorf. That's going to be the wink link in the chain. It's an up and down railroad along much of the route in southern Iowa.
The eastward grade out of Ottumwa was a regular helper grade (maybe the only one on the MILW east of the mountains) in steam days. I think something like 1.8%. One dispatcher in his memoirs (J. F. Frana, "Trains don't Fly") called Ottumwa "Hog Back Hollow." A large section between Cotter (a siding west of Muscatine) and (IIRC) Laredo, MO is unsignalled.
Signalling is possibly a mute point with PTC. CPRS and it's predecessors back to the MILW made it work. Still, as someone on one of my e-mail groups suggested the MILW probably should've looked at taking the entire exGolden State route in southeastern Iowa.
Jeff
The Spine Line would have been a great acquisition too. CP's KC-Chicago and KC-Twin Cities routes are very circuitous as well as capacity-constrained. I don't see the $50 million of reported investment really putting much of a dent into things.
Frankly, I think this transaction is more about buying KCS' franchise than it is about creating a monster integrated system. A lot of KCS' traffic is interchanged with other carriers (such as UP at Laredo), which will have to continue to keep the money coming in. With the exception of access to Mexico, this merger still pales in comparison to the network that CN has assembled.
Can't speak to whether north or south of Ottumwa, IA would be worse for 15,000 foot sidings, but I can tell you from personal experience it will take a lake full of money to put sidings like that anywhere near Poteau, OK and Mena, AR. The Ozark/Ouachita Mountains aren't the Rocky Mountains, but they aren't the coastal plain of Georgia, either. I don't know how much more traffic can be put over the existing railroad without major improvements, but when that point is reached CPKS will have to do work comparable to Southern Rwy. opening up the Rathole. That is some seriously up-and-down land.
If it gets approved this will be a home run for CP and KCS. Personally I hope they keep the red locomotives and the beaver herald along with Canadian Pacific.
azrail The combined parent company will be called "Canadian Pacific Kansas City"(?) That's an awful name. CP International would be much better. Mark Vinski
The combined parent company will be called "Canadian Pacific Kansas City"(?)
That's an awful name. CP International would be much better.
Mark Vinski
In todays trading
KCS was up $24.93 to $249.09 a share
CP was down $21.95 to $356.53 a share
Never too old to have a happy childhood!
Now's the time to buy either one..
KCS is the only rr I have bought stock shares and have done well. This will be a payout for shareholders. Bring it on CP. Ching, ching
I've been wondering for a while now if NS was going to regret that near miss in 2016. My guess is that, in the long term, they will. Coupled with the company's rash of troubles throughout 2019-2020, this merger almost certainly makes them fodder down the road for the next power play (and they will probably wind up as completely unequal 'partners' in that move).
On the upside, I'm glad that CP (probably) won't have to give up its identity in this merger - given KCS' size, Canadian Pacific should remain just Canadian Pacific after this... and not some horrid amalgamation like Canadian Pacific Southern or whatnot. Their locomotives will be a nice sight down south.
n012944 SD60MAC9500 CP will more than likely make a move on CSX's Grand Rapids Line between Porter, IN and Detroit. They'll need their own RoW now between Chicago and Detroit. Except the PM won't get them what the "need". First, I doubt the line from Plymouth to Detroit is for sale. Second, as you state, the westbound end of the line is in Porter In. So CP "needs" their own right a way between Chicago and Detroit, so it buys a railroad from NW Indiana to Plymouth Michigan? Such a route would still require trackage rights between Porter and Chicago over the NS, which is the busiest portion of the route. Such a route would still require rights over CSX from Plymouth to Detroit, which can be congested at times. One also has to ask if the portion from Porter to Holland is even for sale? West Olive is supposed to be in operation until 2030, which on average takes one coal train a day. That is a lot of revenue to get rid of. It also overlooks the fact that it really is not a good route. Short sidings, a hill that requires east bounds to have a helper if over 10k tons (12k if 1+1 DP), and an ancient signal system. I think the CP will keep the route they have, trackage rights over the NS via Elkhart will serve the well.
SD60MAC9500 CP will more than likely make a move on CSX's Grand Rapids Line between Porter, IN and Detroit. They'll need their own RoW now between Chicago and Detroit.
CP will more than likely make a move on CSX's Grand Rapids Line between Porter, IN and Detroit. They'll need their own RoW now between Chicago and Detroit.
Except the PM won't get them what the "need". First, I doubt the line from Plymouth to Detroit is for sale. Second, as you state, the westbound end of the line is in Porter In. So CP "needs" their own right a way between Chicago and Detroit, so it buys a railroad from NW Indiana to Plymouth Michigan? Such a route would still require trackage rights between Porter and Chicago over the NS, which is the busiest portion of the route. Such a route would still require rights over CSX from Plymouth to Detroit, which can be congested at times.
One also has to ask if the portion from Porter to Holland is even for sale? West Olive is supposed to be in operation until 2030, which on average takes one coal train a day. That is a lot of revenue to get rid of.
It also overlooks the fact that it really is not a good route. Short sidings, a hill that requires east bounds to have a helper if over 10k tons (12k if 1+1 DP), and an ancient signal system. I think the CP will keep the route they have, trackage rights over the NS via Elkhart will serve the well.
I didn't realize the Campbell plant would be in operation till 2030. I had to do some catching up. They're expecting unit #3 the last after 2031 to shut down in 2040. In that regard coal is paying the bills until then.
I forgot about the hill at I think Saugatuck?
kgbw49 azrail The combined parent company will be called "Canadian Pacific Kansas City"(?) It sounds like CP and KCS will be kept as separate companies, due to different labor laws/Union agreements between the 3 countries Actually Soo Line, DM&E and IC&E still exist on paper under the CP corporate umbrella. KCS is likely to be acquired in a similar fashion.
azrail The combined parent company will be called "Canadian Pacific Kansas City"(?) It sounds like CP and KCS will be kept as separate companies, due to different labor laws/Union agreements between the 3 countries
It sounds like CP and KCS will be kept as separate companies, due to different labor laws/Union agreements between the 3 countries
Actually Soo Line, DM&E and IC&E still exist on paper under the CP corporate umbrella.
KCS is likely to be acquired in a similar fashion.
I think IC&E was combined into DM&E and no longer exists, even on paper. I remember reading a request submitted to the STB by CPRS to allow SOO and DM&E to have trackage rights over each other between physical interchange points to various points on each railroad. Some of the points were former IC&E locations.
CPRS said it was to improve customer service. Many took it to mean letting lower paid DM&E crews to run farther instead of higher paid SOO crews.
I was looking at their roster curious how the dominos might fall there if this is successful, and saw that they were apparently down to six SD60's on the Panama Canal Railway. When did their sizeable SD60 fleet go?
Will be odd potentially seeing a GP40-2LW in CPR colors.
How about a "Wabash Speedway" deal with NS to Detroit and bypass Chicago?
This could possibly be another of those scenarios that was [played put in the 1980's.... [Possibly remember the "Koda chrome SP/AT&SF era"? That one got stepped on pretty hard by STB and 'denied'; leaving the scene with yellow and red fleets, some with big SP's, and some with SF's for identifications....
So don't get too anxious....After all, "....It ain't over til the fat lady sings..."
Everyone seems to be cncerned that the current major concern, being what'll happen in the PNW, and down the Left Coast?
Do npt forget that KCS Rwy may be a 'center of the Country' Operation, connecting Choicago, St. Louis and NOLA; It also within its 'system' accesses a half dozen Gulf Coast Ports, Deep Sea River access points, and has lines all the way to Central Mexico. Not to also mention the mexican port of Lorenzo Cardenas, on the West Coast of Mexico. And then, there is 1/2 ownership(?) of the 'Meridian Speedway' with NS; which then gets them into Central Tennessee, Mississippi and Alabama Gulf ports, and also western Florida (@ Pensacola).
So that $ 25 B price tag begins to look like a pretty good deal?
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