If I was heading a corporation, I'm not sure I would trust anything in a letter from TCI.
York1 John
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.
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!
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
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)..
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.
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.
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/
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?
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?
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!
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.
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!
I think Mexico is the prize, not just getting to the gulf.
Jeff
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.
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.
Never too old to have a happy childhood!
CN could offer to sell the KCS Mainline KC-Shreveport-New Orleans to CP.
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.
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...
Saw the STB applying the 'Big Merger' to CN when the initially made thier 'bid'. The CP-KCS deal leaves the apperarance of competition N-S in middle America. CN-KCS does not.
Looks like CP will get a cool $700 million and KCS....
Kansas City Southern falls after regulator says merger waiver provision does not apply to Canadian National offer May 17, 2021 2:46 PM ETKansas City Southern (KSU)By: Clark Schultz, SA News Editor6 Comments Kansas City Southern (KSU -2.8%) is having a volatile session after the Surface Transportation Board said its merger rules apply to the company's proposed combination with Canadian National Railway (CNI +1.7%). Canadian Pacific Railway (CP -1.6%) had landed a petition for its deal with KSU to be exempt from the STB merger rules, however the agency determined that the application of the waiver provision to the CN-Kansas City transaction is not warranted. Late on Friday, the DOJ said the CN Rail bid for Kansas City Southern poses greater risk to competition than the CP deal. Analysts expects many swings back and forth for KSU, CNI and CP as the merger drama plays on. Shares of Kansas City Southern are still up more than 50% YTD on optimism that a merger deal of some sort will make it to the finish line.
The former merger rules implemented as part of The Staggers Act rail regulation reform were written to promote mergers. At the time there were many failing railroads and the idea was to allow them to merge to get economies of scale benefits and stay in business as a transportation option. Several dozen Class I railroads merged down to 7 by about 1996.
In 1999 BNSF and CN proposed a merger. It likely would have triggered the dominos down to two systems across North America with a potential long term risk of many captive shipper situations developing.
At that time the STB put a hold on any merger application reviews to write new merger rules to ensure that future mergers would enhance competition.
The new rules applied to all Class I railroads except KCS, which was much smaller at the time and so was grandfathered in under the old rules.
While the STB technically did not rule against the BNSF-CN merger, when the new rules were published, BNSF and CN pulled their merger application and the seven-Class-I status quo was maintained.
MidlandMike The ICC had the power to nix the SP/SF merger. How many mergers has the STB stood in the way of?
The ICC had the power to nix the SP/SF merger. How many mergers has the STB stood in the way of?
LANDON ROWELLHowever, CN seems confident they can get approval and may not be willing to deal. Could we see a repeat of the Santa Fe-Southern Pacific merger attempt? SP was put in a voting trust, and the railroads were so confident of ICC approval, they started painting locos. They also didn’t agree to a lot of conditions to address concerns. They ended up having to sell SP (to Rio Grande) for what they could get.
I come down in favor of the CN. As a former ICG marketing type I know the only significant competitive overlap for a CN/KCS combination is the 65 miles between Baton Rouge and New Orleans.
On that 65 miles duplicate lines of both railroads serve major shippers jointly. These shippers are refineries and petrochemical plants. KCS and CN compete for this business. Combining KCS with CN would eliminate this competition.
CN is aware of this and is willing to mitigate the issue by divesting the KCS line between Baton Rouge and New Orleans if need be. (See Bill Stephens' very good article on the merger in July Trains.)
Aside from that, what's wrong with KCS accepting CN's superior bid? The US Department of Justice doesn't know a thing about transportation in general or railroading in particular.
DoJ says CN Rail bid for KC Southern poses greater risk to competition May 14, 2021 7:27 PM
ETCanadian National Railway Company (CNI)By: Carl Surran, SA News Editor10 Comments Canadian National Railway's (NYSE:CNI) takeover bid for Kansas City Southern (NYSE:KSU) appears to pose greater risks to competition than a rival deal with Canadian Pacific Railway (NYSE:CP), the U.S. Department of Justice says in a filing with the U.S. Surface Transportation Board.
"A CN-KCS transaction poses additional dangers to competition stemming from the potential elimination of direct, 'parallel' competition on routes served by both railroads, for example between Baton Rouge and New Orleans," the DoJ says.
CP Rail says it "concurs with the DoJ's objection to CN's application for proposed use of a voting trust on the grounds that a CN merger with KCS would pose greater risks to competition."
"The DoJ's position is consistent with CP's assessment that CN's proposal is illusory and offers unattainable value to KCS shareholders."
Kansas City Southern yesterday accepted CN Rail's $33.6B takeover offer as "superior" to CP Rail's previous $29B deal.
Wow, looks like CP will get that $700 million and now possibly KCS.
CP/UP - Chicago-Clinton and CP Clinton-KC provides a more direct Chicago-KC line than either has alone, not counting UP's trackage rights on BNSF, which is only for intermodal and automotive. This extends the Golden State Route to Chicago, where RI had it in the first place! Also, traffic coming out of Western Canada or the Dakotas can avoid Chicago congestion by taking CP to Clinton and then UP to St Louis for CSX or NS interchange. The direction reversal at Clinton would not be a major issue with distributed power. However, there is some overlap in the Midwest that would have to be addressed by allowing a competitor in.
CP/NS - Traffic between Western Canada and Southeastern US could avoid Chicago by using CP from St Paul to Davenport and NS' rights on Iowa Interstate to Peoria or the south side of Chicagoland. Maybe this doesn't avoid Chicago completely, but using IAIS avoids a long slow trip down from Bensenville.
I don't see a lot of overlap between CP and NS or CSX. However, they would have to show that competition is increased so concessions to other RRs would be necessary.
Backshop Why would CSX give up the former PM?
Why would CSX give up the former PM?
In my speculation the thought is that CSX has a better route to Detroit to the south, BNSF would want a contiguous connection to their new track in Ontario, and paying for that would offset a small amount of the CSX purchase of "CP West".
All just speculating to start a conversation and see what other thoughts are out there.
Right now Warren Buffett is sitting on billions in cash, and while a whole railroad would eat up a lot of that, maybe half would be doable. BNSF running intermodal from Mexico to Toronto and Montreal would sort of be in their wheelhouse. They could call it the Canamex Transcon or something like that.
Didn't Trains magazine spend most of the early 2000's assuring us that north-south railroards were of small consequence?
tree68Atlantic and Pacific - Maybe they could even get permission to use the logo...
I wonder if BNSF still holds rights to that name?
https://en.wikipedia.org/wiki/Atlantic_and_Pacific_Railroad
Murphy SidingNorfolk & Pacific?
Atlantic and Pacific - Maybe they could even get permission to use the logo...
Larry Resident Microferroequinologist (at least at my house) Everyone goes home; Safety begins with you My Opinion. Standard Disclaimers Apply. No Expiration Date Come ride the rails with me! There's one thing about humility - the moment you think you've got it, you've lost it...
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