Michael:Good to hear from you again. I do not dispute there have been larger take outs this year. TXU is a rather interesting one in particular. The quote from the Economist is interesting. However, I submit that the private equity market has changed rather dramatically since that article in May.
Junk debt is not moving well. It was a seller's market for debt placement up until mid June. Now it has very quickly turned. Buyers of debt are now demanding strict covenants regarding debt to cap, interest earned and others. PIK (payment in kind) has all but disappeared.
While BNSF and UP are "within reach", the IRR numbers do not support the risk involved. KCS is probably the only one in which it would work and that is based on growth potential and cutting of costs.
ed
Hugh Jampton wrote:Whadayamean private?!? They're already private, most of them always have been except for the ones that were owned by the Government for a while, and hence public.
As used here in the good ole..., means the ownership resides with just one real or artificial person. Going from "public" to "private" means that all the outstanding stock has been acquired by one "person". Since the general public does not participate in the ownership and there is no trading of shares, the "privately" owned entity is substantially exempted from our Security Exchange Commision rules for reporting financial results.
However, a privately held railroad would still be subject the reporting rules as set forth in our Surface Transportation Act.
"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics
MP173 wrote: There is a huge difference in the valuations of trucking companies and the railroads. It appears the days of ENORMOUS leveraged take outs may be nearing the end, at least during this cycle. Interest rates are beginning to rise and cheap money is a not so distant, but fleeting memory....I dont think it will happen. The debt load would be very expensive and there are too many things that could go wrong.
There is a huge difference in the valuations of trucking companies and the railroads. It appears the days of ENORMOUS leveraged take outs may be nearing the end, at least during this cycle. Interest rates are beginning to rise and cheap money is a not so distant, but fleeting memory.
I dont think it will happen. The debt load would be very expensive and there are too many things that could go wrong.
One of the little-commented on side-effects of the STB "return on capital" regulatory attitude is that while condemning captive shippers to non-market pricing for so long as railroads do not earn their [highly artificial] return on capital, the process creates companies which -- and the irony is profound -- can exploit those shippers to obtain profitability levels which thereupon invite privatization, high debt loads, and enormous vulnerability to business downturns.
The theory has been destructive to captive shippers, and may well prove fatal to the rail industry.
Recent private equity conversions were huge. TXU was taken private earlier this year for $45 billion, Clear Channel for $18.7 billion, and Univision for $12 billion.
These compare with current market capitalizations of BN at $30.8 billion, Union Pacific at $31.4 billion, Norfolk Southern at $21.4 billion, CSX at $20.3 billion, CN at $26.1 billion, Canadian Pacific at $11 billion, and KCS at $3 billion.
According to a managing partner of TCI, which recently invested heavily in US railroad stock, "railways could use more gearing. Most carry debt on the balance sheet of about two times earnings before interest, tax, depreciation, and amortization. He thinks they could bear more than five times." "The New Railway Barons," The Economist, 5/17/2007.
In this context, private means closely held by a small number of shareholders and the shares are not traded on any exchange.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
Last week there were several low investment grade debt offerings which did not fly (Servicemaster and Dollar General are two). The entire subprime mortgage situation, which have been collateralized into CDO's with other debt to create tranches of debt, based on risk is creating severe volitility in the markets.
On the other hand, if any railroad will be taken private, it probably would be KCS. They are the only legit opportunity at this time, based on their potential Internal rate of return model. Their OR is high enough that sharp penciled financial types could work their wonders (or at least try). Plus, they have the best growth potential of all the railroads at this time.
Let's say that Wall Street is a leech and a parasite. There is too much effort and spinning wheels trying to keep up with the infantile demands of shareholders.
Roll them wheels and keep the profit inside the company, pay the workers thier share and bank the savings against breakdowns and old equiptment.
If they have to go private to do it, then do it.
I worked for a company years ago that spent so much money, effort and time wining and dining shareholders and other VIP they forgot to tell the dispatchers, office workers and drivers how much they are appreciated and loved. I learned a lesson. If the Trucking company has a lobby with 30,000 dollars worth of old furnature, turn around and find another who are focused on running loads. I even recall telling the President on paper that little fact.
I have been told many times that I have trouble with those who are not in touch with the dispatch, docks and truck shop. Best the suits stay over there and I stay over here. LOL.
futuremodal wrote: Just saw a news blurb that US Express is going private. Swift has already gone private.So is it inconceivable that a Class I may go private in the foreseeable future, say a KCS?
Just saw a news blurb that US Express is going private. Swift has already gone private.
So is it inconceivable that a Class I may go private in the foreseeable future, say a KCS?
Nothing is impossible, but some things are a lot less probable than others.
Consider relative capitalization, and who holds the shares. If the majority of shares are held by a (relatively) small number of like-minded investors, going private is relatively easy.
If the huge number of outstanding shares are held by banks, insurance companies and retirement trusts, with private individuals confined to small percentage holdings, going private is extremely unlikely.
But, nothing is impossible!
Chuck
Our community is FREE to join. To participate you must either login or register for an account.