CMStPnPCP might sweeten its bid but if I were CP I would stand with the current offer and not increase it. I think all along CN's strategy was to try and load up CP with debt rather than possess KCS.
As with Hunter's buy-out at CSX, it remains to be seen what the stockholders vote to 'assume'. And as with most plutocratic decision-making about governance, they deserve the compensation they receive and the kind of railroad operation governing their future "wealth"
Ask Kerk Kerkorian about Chrysler and expedience...
CMStPnP Agree that CN is not going to get KCS even with a superior bid. CP might sweeten it's bid but if I were CP I would stand with the current offer and not increase it. I think all along CN's strategy was to try and load up CP with debt rather than possess KCS. Pretty confident CP will get KCS at this point and CN will be left with it's current system and no concessions from CP.
Agree that CN is not going to get KCS even with a superior bid. CP might sweeten it's bid but if I were CP I would stand with the current offer and not increase it. I think all along CN's strategy was to try and load up CP with debt rather than possess KCS. Pretty confident CP will get KCS at this point and CN will be left with it's current system and no concessions from CP.
I think there is still a substantial risk that CN obtains the KCS. CN may face more road blocks, but it isn't impossible that they will win.
Quote from the recent trains article:
Hatch, like other analysts, expects the STB to ultimately approve a CN-KCS combination.
CN could offer to sell the KCS Mainline KC-Shreveport-New Orleans to CP.
CP gets to the Gulf. Competition enhanced.
CN wants access to KC, Dallas, Houston and Mexico.
kgbw49CN could offer to sell the KCS Mainline KC-Shreveport-New Orleans to CP. CP gets to the Gulf. Competition enhanced. CN wants access to KC, Dallas, Houston and Mexico.
And CP doesn't want KC, Dallas, Houston & Mexico? PishTosh!
Never too old to have a happy childhood!
BaltACD, I didn't say CP doesn't want to access those areas. Of course they do.
What I was saying in a short fashion is that because under the more stringent merger rules, which require enhanced competition, CN could give CP its own end to end route from the end of CP track in Kansas City all the way to New Orleans, through Baton Rouge and the refining-chemical area.
That would give CP the original KCS which is duplicative to the CN route from the Midwest to NOLA.
Whether that would be enough for the STB to approve the CN bid remains to be seen. Maybe they would require more CP trackage rights to other places.
But for the CN bid to "work" for CN, they need all the other track besides the original KCS more than they need the original KCS.
Note, I am not taking sides and rooting for one road over the other - just making some observations, is all. It is fascinating what might come out of this merger battle when the dust settles.
Going back to the OP's question.. i.e. what would happen to the CP in the event of a CN-KCS merger? Short answer.. it would remain a viable east west carrier with ports on both the east and west coasts. sure, it would be left as the smallest class 1 by far, but I don't believe that would necessitate having to merge with anyone. So they're smaller.. so what. They're still big enough to tap into all the economies of scale that the larger systems do, and a smaller railway has the advantage of being more manageable. And CP does have natural competitive advantages.. it is the shortest route from Western Canada to the central US..and its shorter to the East coast than its rival CN. CP would have no trouble surviving among its much larger peers in the same way that KCS has thrived on its own as the dwarf among giants all these years.
BaltACD kgbw49 CN could offer to sell the KCS Mainline KC-Shreveport-New Orleans to CP. CP gets to the Gulf. Competition enhanced. CN wants access to KC, Dallas, Houston and Mexico. And CP doesn't want KC, Dallas, Houston & Mexico? PishTosh!
kgbw49 CN could offer to sell the KCS Mainline KC-Shreveport-New Orleans to CP. CP gets to the Gulf. Competition enhanced. CN wants access to KC, Dallas, Houston and Mexico.
I think Mexico is the prize, not just getting to the gulf.
Jeff
Agree jeffhergert.
CP wants to get to the nearshoring growth in Mexico.
CN wants to get to the nearshoring growth in Mexico.
CP needs all of KCS to get to Mexico.
CN needs only part of KCS to get to Mexico.
CN can get there from the CN mainline in Jackson, MS to Shreveport, LA and thence south from there.
CN does not need the original KCS from KC to get to Mexico.
Hence, perhaps a spinoff of the KCS from KC to Shreveport and the KCS from Shreveport to NOLA to eliminate all the 2-to-1 shipper issues from Baton Rouge to NOLA could be part of their strategy.
CN did actually ask the STB to use the new rules on their proposed combination. So that was either bluster (could very well be) or they just might actually have a plan.
Interesting stuff!
A large Investment/Hedge Fund with significant holdings in both CN and CP has sent a letter to CN's CEO that his bid for KCS is a mistake and that the STB has signalled that they are likely to reject CN's acquisition of KCS. They also stated that if the Voting Trust is approved and the deal is denied they anticipate that CN would take a $15 to $18 billion dollar loss. If that happens they will demand an immediate resignation of CN's CEO.
TCI Fund letter
Isn't TCI the hedge fund that used to own a lot of CSX stock and caused all kinds of problems about a decade ago?
If you want to see what will remain of KCS north of Shreveport if CN takes over, look no further than BC Rail for virtually all of its original line. Maybe they would keep some rail around the endpoints, but would Rich Mountain become the next Tennessee Pass?
BackshopIsn't TCI the hedge fund that used to own a lot of CSX stock and caused all kinds of problems about a decade ago?
https://www.tcifund.com/
Ulrich Going back to the OP's question.. i.e. what would happen to the CP in the event of a CN-KCS merger? Short answer.. it would remain a viable east west carrier with ports on both the east and west coasts. sure, it would be left as the smallest class 1 by far, but I don't believe that would necessitate having to merge with anyone. So they're smaller.. so what. They're still big enough to tap into all the economies of scale that the larger systems do, and a smaller railway has the advantage of being more manageable. And CP does have natural competitive advantages.. it is the shortest route from Western Canada to the central US..and its shorter to the East coast than its rival CN. CP would have no trouble surviving among its much larger peers in the same way that KCS has thrived on its own as the dwarf among giants all these years.
I don't think the comparison to KCS as it is today makes very much sense. KCS never had any direct competitors that did exactly what they did. The portion to Mexico kept them in the game as long as it did.
CN has a number of existing advantages over CP and their mainlines typically overwhelm CP's in terms of volumes. When CN gets KCS, a lot of new customers will shift to CN and growth will favour CN significantly as they would offer a single line routing to destinations across North America. CP will be left with their curvy and steeper lines, with no good connection betwee Chicago and Ontario. CP will be left as a small carrier with significant structural disadvantages. It will struggle long term.
beaulieu A large Investment/Hedge Fund with significant holdings in both CN and CP has sent a letter to CN's CEO that his bid for KCS is a mistake and that the STB has signalled that they are likely to reject CN's acquisition of KCS. They also stated that if the Voting Trust is approved and the deal is denied they anticipate that CN would take a $15 to $18 billion dollar loss. If that happens they will demand an immediate resignation of CN's CEO. TCI Fund letter
Hopefuly CN takes these concerns seriously.. the downside if things go sideways could wipe out a big chunk of CN's equity. Is it worth it? In my opinion, no. CN already has a great network and doesn't really need a direct connection to Mexico.. (something that could be achieved without an expensive merger)..
It is hard to see how CN can meet the requirement of the new merger rules to enhance competition unless there is significant divestment of portions of KCS as well as trackage or haulage rights. We will see!
kgbw49It is hard to see how CN can meet the requirement of the new merger rules to enhance competition unless there is significant divestment of portions of KCS as well as trackage or haulage rights. We will see! Add Quote to your Post
Yup, I agree and now I am in with real money. As I said before I think CP has a much more favorable relationship with shippers and regulatory agencies in the United States than CN does. Bought 550 shares of CP today.
Though CP is doing pretty well in my view without KCS and I disagree that it is game over if CN gets KCS. I'm pretty confident CP has a plan B. I don't think KCS is such a great deal for CN as it is for CP.
If I was heading a corporation, I'm not sure I would trust anything in a letter from TCI.
York1 John
I asked my doctor if I gave up delicious food and all alcohol, would I live longer? He said, "No, but it will seem longer."
Gates' investment outfit came out in support of this merger. CN cares far more about their opinion than TCI's.
Greetings from Alberta
-an Articulate Malcontent
SD70Dude Gates' investment outfit came out in support of this merger. CN cares far more about their opinion than TCI's.
Nevertheless there are some serious downsides and costs that need to be considered if the CN bid falls apart... that's really all TCI is saying.
My main concern with it is that CN for some reason only saw this golden once in a lifetime opportunity AFTER CP put in its bid. And then a couple of weeks later they quickly put in a higher offer of their own.. makes me wonder how much thought went into CN's proposal.. usually these things take more than a couple of weeks to identify and to put together. Just like Cascade and TCI, alot of us here are minority shareholders in one or both companies.. TCI is forcing CN to look at all the angles and to carefully consider the potential downside.. in a way that's what an activist investor is supposed to do, and really they're doing all of us a huge favor by (almost) shouting fire here.
It would seem that CN decided they cannot allow CP to acquire KCS, and there is a point behind this. A lot of our oil and chemical traffic must be interchanged to another railway (often KCS) for delivery to the U.S. gulf coast region, and a CP-KCS merger would put them in a much better position to compete for traffic like this.
I don't think CN really wanted to go after KCS, at least not at this time. And I would actually prefer that no merger take place, so each individual railway could focus more on getting their own houses in order. But I do understand why CN feels that going after KCS (even for a premium and perhaps inflated price) is preferable to allowing CP and KCS to merge. Remember how NS responded when the CSX-Conrail merger was first announced.
TCI and their hedge fund ilk are the wrong crowd to be crying about how a company could be damaged, after all they have done over the last 15 years.
SD70DudeTCI and their hedge fund ilk are the wrong crowd to be crying about how a company could be damaged, after all they have done over the last 15 years.
Exactly!
I thought it was all about single line access to Mexico.. i.e. CN already has access to the Gulf via its own line.
CN does not have direct access to the southwest Louisiana and Texas regions, which are full of refineries and chemical plants. KCS does serve this region.
My point was that a CP-KCS merger also has the potential to take away a lot more traffic that CN currently enjoys.
So now CP tells KCS, they are not playing the CN game and they are not boosting their offer. Which is exactly the stance I would take if I were running CP. CP calls CN's offer "illusionary". I think the CN offer will unravel and even if it does not with that load of cash available CP has other options open to it for the same or less money. Interesting to see what CN's response is. CP stock up slightly on the news.
The implication seems to be that CN is overpaying for Kansas City Southern and CP doesn't want to get into a bidding war like NS and CSX did for Conrail.
SteamRoller88KUDOS to CP I think CN knows they won’t get regulatory approval and wanted CP to outbid CN and CP themselves to hurt them financially.
I also feature that was CN's ploy from the outset - get CP to out bid itself.
The merger agreement between CN and KCS is now official which means that the merger is now likely to happen. As noted before, the merger is likely to receive regulatory approval.
I think this makes official something that has been observed for a long time; CP is a glorified regional railroad with a poor reach.
If I was CP, my next move would be to lobby to get the revenue bar raised in order to be classified as a class 2 rather than a class 1.
wasd If I was CP, my next move would be to lobby to get the revenue bar raised in order to be classified as a class 2 rather than a class 1.
CP is instead proceeding with it's plan to acquire KCS, they intend to file their formal plan with the STB in late June.
CN had announced that their formal plan will be filed sometime in August. I would expect that we will hear about CN's Voting Trust in late June or early July.
A couple of other points to ponder. UP gets 2/3rds to 3/4ths of the northbound traffic off KCSdeM and will seek to retain that, both through actions at the STB, and though the marketplace. KCS and BNSF split the remainder. Also the Mexican legislature has been agitating to shorten the concession from 50 years(2047) to just 30 years (2027). The sale of KCS maybe just what they need as cover to change the deal.
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