But add CN's (albeit declining) net earnings and things don't look quite so bad at roughly 3.5 billion total.
The other thing is there is no guarantee the government of Mexico will approve either CN or CP. I don't know what the deal is between KCS and government of Mexico. Might there be risk of the length of the KCSM lease being adjusted to a shorter period because of any change of ownership, or perhaps a renegotiation of terms of the lease to make of if greater benefit to Mexico?
That is a lot of risk for both $29 billion and $33 billion.
Oh, you bet they would! Agree 100%. I just threw some thoughts out there for conversation purposes. I do think the permutations are almost endless.
I still can't figure out offering $29 billion or $33 billion for a property that earned just $627 million net income in its best year of 2018.
Even if there really is $1 billion annually of synergies and that all drops to the bottom line, you still won't get your money back for 29 years or 33 years.
By comparison Berkshire Hathaway "made it's money back" after about 9 years from the date of the purchase of BNSF.
BaltACDSTB holds all the cards.
plus 10% for the big guy.....lol.
kgbw49Surmising for the heck of it. CP will get: 1. Ownership of the original KCS from KC to Shreveport and thence to New Orleans. 2. Trackage rights on CN from KC to Detroit via Springfield and Chicago. 3. Trackage rights Shreveport-Dallas and Shreveport-Houston. If there are other concessions look for BNSF to offer big bucks to acquire Dallas-Meridian but with CP and CN trackage rights Shreveport-Dallas.
So your presumption is that NS, CSX and UP will not also jump in and protest? I have a feeling one or two of them will to see what they can get. Primarily NS, I would think would jump in and protest to see if it could grab some lines.
It should be noted that regulatory bodies as a whole do not take too well to those who assume that approval will be granted. Note the disapproved ATSF/SP merger with the ICC and various antitrust issues with mergers in other industries.
If the CN-KCS merger is approved then it will be the first such approval under the new much stricter STB rules. The STB will probably render a decision based not only on the merits of the CN-KCS deal but also on any implications a decison would have on possible future mergers. An approval with few conditions will open the flood gates to other mergers while an approval with many onerous conditions will give any future merger proponents pause for thought and careful reconsideration.
Things could really get ugly for CN if the STB allows the voting trust and subsequently denies the merger. CN wil then be forced to unload the KCS.. likely at a much lower price. That's what TCI was getting at in their letter to CN earlier this week. And.. CP will likely come back with their own proposal which is more likely to be approved under the old STB rules. Given this possible negative outcome, CN has bet the farm on the merger approval.. As a shareholder I hope their confidence in getting the needed approvals isn't misplaced.
Surmising for the heck of it.
CP will get:
1. Ownership of the original KCS from KC to Shreveport and thence to New Orleans.
2. Trackage rights on CN from KC to Detroit via Springfield and Chicago.
3. Trackage rights Shreveport-Dallas and Shreveport-Houston.
If there are other concessions look for BNSF to offer big bucks to acquire Dallas-Meridian but with CP and CN trackage rights Shreveport-Dallas.
A wild card in the proposed CN/KCS marriage could be what conditions the STB decides to impose before approval is granted. We have seen the results in a small way with the stalled sale by CSX of their line through Massena, NY to Montreal to CN. A paper barrier was part of the deal that would forever prevent potential interchange by CN with an existing second railroad at the south end. The STB required elimination of that clause, and CSX is not prepared to do that.
The STB may impose pro-competitive conditions on the CN/KCS deal that cause CN to want to back out.
Anyway, it should be fascinating to watch developments over the next several years.
John
CMStPnP Very well put.....Am personally disappointed with the latest development today but it wasn't completely unexpected either. One thing that I found out today that I didn't know earlier is that the KCS Board - by law - HAD to accept the higher offer by CN or it would have been liable to a lawsuit. But with that said, CN undoubtedly faces a bigger uphill battle here than many people want to believe. The amended voting trust plan could easily be shot down on anticompetitive grounds and even if they DO get approval for that, then there's the matter of getting the actual merger itself through. STB in one scenario might approve it but with so many conditions that it becomes unacceptable to CN. But I strongly believe that, one way or another, CN will get shot down here at some point. The fundamental problem I have in all this is that I think one has to be asking himself just where is the fiduciary responsibility that CN (presumably) has to its stockholders? It's already effectively on the hook for a potential break-up fee with KCS if things do indeed unravel (two billion plus the cool 700 million break-up fee that KCS now has to pay CPRS). We've already seen what TCI has had to say about all this and I can't believe that there aren't others. wasd 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. I disagree, first the doom and gloom on CP is completely unwarranted regardless of the outcome of this merger. If one were to believe the doom and gloom story line then by all measures UP should be kicking BNSF to the curb competitive wise because UP has the other half of the Mexican rail system and BNSF does not. Not happening though. Second the fact that KCS board approved of the CN bid means nothing until it is rubber stamped by regulators whom stated they are concerned about the anti-competitive nature of the CN-KCS agreement. Wall Street analysts notwithstanding and if you paid attention to them CP stock is up and CN stock is down on the annoucement the KCS board approved of CN.....what does that say? So I still think we need a regulatory approval here before we see the merger go through as proposed. Other scenarios could still happen. Regardless of the outcome, CP is not at all doomed.....that is just silly.
Very well put.....Am personally disappointed with the latest development today but it wasn't completely unexpected either. One thing that I found out today that I didn't know earlier is that the KCS Board - by law - HAD to accept the higher offer by CN or it would have been liable to a lawsuit. But with that said, CN undoubtedly faces a bigger uphill battle here than many people want to believe. The amended voting trust plan could easily be shot down on anticompetitive grounds and even if they DO get approval for that, then there's the matter of getting the actual merger itself through. STB in one scenario might approve it but with so many conditions that it becomes unacceptable to CN. But I strongly believe that, one way or another, CN will get shot down here at some point. The fundamental problem I have in all this is that I think one has to be asking himself just where is the fiduciary responsibility that CN (presumably) has to its stockholders? It's already effectively on the hook for a potential break-up fee with KCS if things do indeed unravel (two billion plus the cool 700 million break-up fee that KCS now has to pay CPRS). We've already seen what TCI has had to say about all this and I can't believe that there aren't others.
wasd 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.
I disagree, first the doom and gloom on CP is completely unwarranted regardless of the outcome of this merger. If one were to believe the doom and gloom story line then by all measures UP should be kicking BNSF to the curb competitive wise because UP has the other half of the Mexican rail system and BNSF does not. Not happening though.
Second the fact that KCS board approved of the CN bid means nothing until it is rubber stamped by regulators whom stated they are concerned about the anti-competitive nature of the CN-KCS agreement. Wall Street analysts notwithstanding and if you paid attention to them CP stock is up and CN stock is down on the annoucement the KCS board approved of CN.....what does that say?
So I still think we need a regulatory approval here before we see the merger go through as proposed. Other scenarios could still happen. Regardless of the outcome, CP is not at all doomed.....that is just silly.
STB holds all the cards.
Never too old to have a happy childhood!
wasdThe 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.
In CN's newest press release thay say that they will make $1 billion (presumably per year) through the synergies of single-line service between Mexico and Canada. If the deal goes through and CN wins KCS, CP should immediately approach UP and offer to allow UP to quote rates from the Mexican border to any point in Canada that CP serves or can reach through Interswitching, for CP's cost plus 5%. CP would accept interchange in Chicago or Minneapolis. This would severely limit CN's revenue that they need to service their new debt, and from CP's standpoint it's traffic they would have a hard time getting. I am sure UP will take actions to limit what traffic CN can steal from them through the STB.
Perhaps CP is too confident, but they can't outbid CN. Their best chance is to convince the STB to deny the voting trust.
If the trust is approved CP can oppose the merger or attempt to negotiate with CN for part of KCS and/or trackage rights. If CN will not negotiate a deal acceptable to CP, they can oppose the merger.
If the trust is not approved, I don't think KCS is obligated to merge with CN. They would have to choose between a good payout from CP now (since the STB has already approved CP's voting trust) or a better payout from CN later, but only if the merger is approved.
I would suggest that maybe CN is being overconfident. I know the analysts think this will be approved, but Santa Fe and Southern Pacific thought their merger would be too. We are in uncharted territory with the new rules. I do think CN probably can get a merger with KCS approved, but it may require a lot of concessions to CP and possibly others.
I think CN and CP should split KCS, with CN getting the former Gateway Western and Mid-South, CP getting KC-NOLA, and the rest becoming a shared assets area. Other gateways with NS, CSX, UP and BNSF would need to remain open. This would meet the new requirement of increasing, rather than preserving, competition.
wasd I feel like CP is far too confident that the STB will shoot down CN's deal. CN's deal is likely to get approved as noted by analysts. All CP will be left with is a measly $700 million and comparitively small system with a debilitating gap between Chicago and Ontario. And unlike the destinct advantage of being north-south with reach into Mexico like KCS had as the smallest railroad, CP won't have any advantages. They would provide only weak competition.
I feel like CP is far too confident that the STB will shoot down CN's deal. CN's deal is likely to get approved as noted by analysts. All CP will be left with is a measly $700 million and comparitively small system with a debilitating gap between Chicago and Ontario. And unlike the destinct advantage of being north-south with reach into Mexico like KCS had as the smallest railroad, CP won't have any advantages. They would provide only weak competition.
How can CN be so sure that their plan will be approved by the STB? The STB could decline the deal, and then what? I see this a a $2 billion dollar gamble. If the merger is nixed CP will come back to the table with their original offer to KCS.. could be a huge win for CP as they would also collect the $700 million from CN.
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.
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.
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.
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.
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 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.
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.
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.
Greetings from Alberta
-an Articulate Malcontent
I thought it was all about single line access to Mexico.. i.e. CN already has access to the Gulf via its own line.
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!
York1 John
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.
SD70Dude Gates' investment outfit came out in support of this merger. CN cares far more about their opinion than TCI's.
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.
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