Matt Rose: If NS goes, we're in

The executive chairman of BNSF Railway is fond of saying that railroad mergers don’t occur in a vacuum. Do one, says Matt Rose, and there will be another. “They always go in pairs,” he said today. With hints like this, who needs to speculate? In case you still don't get it, Rose says that if Canadian Pacific and Norfolk Southern seek regulatory approval to merge, BNSF will participate, “both in the approval process and strategically in terms of buying another railroad.”

Rose doesn’t say this, but you should pencil in “CSX Transportation” as that other railroad. Rose contends that CP+NS would “destabilize” the other big eastern carrier. Having Norfolk Southern’s profits taxed at Canada’s lower corporate tax rate, for instance, puts CSX at a competitive disadvantage. Rose almost laughs at the contention CP made yesterday in a podcast that its buying NS wouldn’t trigger other mergers. “They don’t know what I’m going to do,” he says. (Asked whether Norfolk Southern has approached BNSF to be its white knight, Rose replies no.)

What would Rose prefer happen? After all, the guy he replaced, Rob Krebs, is a fervent apostle of railroads having a national reach. “Well,” he says, “I always put myself in the minds of my customers. I just sense customers feel there has been too much consolidation and too much market power put in the hands of railroads.” He doesn’t disagree with Krebs that a national railroad has benefits. “I just think the price of seeking approval is a huge trip wire in terms of regulation.”

And after all, Rose adds, life in the railroad world isn’t so bad these days. “We’re in a virtuous cycle, in that we are investing much more and earning much more. What happens when that cycle becomes broken? Why risk regulatory change?” Why toy with success? he seems to be saying. “We’ve always merged in periods of weakness,” he adds. “The railroads today are not in a position of weakness.”

While the mating dance continues to his east, Rose is in the enviable position of being  insulated from Wall Street’s white heat by owner Berkshire Hathaway. “We have a happy owner,” says Rose, “and everybody knows it has the firepower to do a major transaction,” to which he immediately adds, “which our customers do not want us to do.”

So there you have it. BNSF for now can sit this out, watching Norfolk Southern try to evade its suitor. “But if it’s going to happen,” Rose adds, “we going to play.”--Fred W. Frailey