CANADIAN NATIONAL ENTERS BIDDING WAR WITH CANADIAN PACIFIC FOR KANSAS CITY SOUTHERN

CN+KCS have filed their joint request for a voting trust. Expedited.

https://dcms-external.s3.amazonaws.com/ ... 302407.pdf

369 pages...

Gilbert B Norman wrote: ↑Wed May 26, 2021 12:41 pm

Calgary-based CP would be the likely buyer of those CN lines – CP’s network also runs through Chicago. So, the new map of North American railways would feature CP gaining access to the Gulf of Mexico, while CN extended its reach across Mexico.

If there is to be a CN-KCS combination, I wouldn't rule out a divestiture along these lines. However, I would think the line "on the block" would be the KCS. CP already has the MILW, Mpls and Chi-KC and absent such a divestiture, KCS could easily become an FRA Class 2 secondary line.

Assuming the STB won't let CN keep both the KCS connection to the gulf and the IC connection to the gulf the question becomes which would be more valuable in the long term and which could be sold off for more money.

Keeping what they can of KCS and spinning off the rest as a Class 2 is an option, with STB approval and if that would provide CN with a bigger payday. Or if KCS is the better link to the gulf the IC could be spun off. The sale of one of the lines to CP might make the STB happier than seeing a smaller spin off that would not provide the competition against CN that a parallel CP line would provide.

The big issue today is to get the Voting Trust approved - KCS shareholders get paid and CN starts figuring out (with the STB) just how much of KCS they can keep. No voting trust approval will kill the deal.

There are many who are quite concerned about how CN is planning to finance this transaction. CN plans to finance the transaction primarily through debt, meaning that a merged CN-KCS will certainly have a lot of it.

If you look after every major Class I transaction, the merged railroad tends to sell low-density lines to help pay off the debt load. The number of lines sold off depends on how much debt the merged railroad has. UP-SP didn't have a lot of post-merger debt, so no lines were sold off. SOO-MILW had a lot of post-merger debt, so they sold a lot of lines.

I would not be surprised if CN-KCS spins off Kansas City-Shreveport and by extension Meridan-Corinth to new regionals. The first line would see a great reduction in traffic due to traffic shifting to the former IC, and the second is already an odd fit with the system, to begin with. You could also see the long-rumored sale of lines around Ottawa. CN retains what is truly important for them, which is the line between Jackson, Mississippi, and Laredo, Texas, and Kansas City Southern de Mexico.

Gilbert B Norman wrote: ↑Fri May 21, 2021 5:53 am Loonies talk louder than balanced competition.

Not really. SPSF is the big example, but there are few lessor known ones. When GTW, SOO, and the C&NW were battling over the remains of the MILW in the 80s, C&NW offered the highest bid. Despite this, the bankruptcy trustee awarded the MILW to the SOO to create two 'balanced" rail systems in the Upper Midwest. UP and BN engaged in a bidding war over the ATSF in 1994. UP had more money, but eventually lost the will to fight and we all know what ended up happening.

Mr. Shortline, somehow when I addressed Loonies, I was thinking how the Canadian regulatory agency, Transport Canada, permits CN to "own" both Halifax and Prince Rupert. Somehow, the paucity of "berths" confronting shipping at present means the maritime companies have little choice other than to call at either.

It was this same reasoning to discuss at this site how I thought AAF/Brightline/Virgin/(back to) Brightline was a ploy to sell the FEC Ry to the State in that the Florida maritime ports did not wish to have either Chessie or Topper gobble it up like a can of Fancy Feast or a bin of oats so that the Jax gateway would remain open. I was "half-right" in that FEC was sold to Mexican interests having "no skin in the game" regarding the routing of shipments anywhere from Florida; "half wrong" in that Brightline I'm certain will resume once they can serve McCoy (for those tuning in late; McCOy=Mc Coy AFB=Orlando International Airport).

However, I continue to hold that the US regulatory agency, the Surfboard, wants balanced rail competition. True, Mr. Shortline notes how ATSF wanted SP. How they could want a road as sick as was "my MILW" escapes me. Likely in time, the explosive growth of the petrochemical industries would have provided traffic sufficient to "resurrect" SP, provided that someone had the $$$$ to rebuild the railroad, which their "natural" merger partner, the UP, did.

So to close back on topic, if CN-KCS is to come to pass, and "Lakes to Gulf" is what it's all about (Mexico a "sideshow" considering the political instability and that "the curtain could fall" in twenty or so years with the government - assuming they even have one - getting back in the railroad business), CN will have to divest either the KCS-L&A or the IC. As noted, my bet will be the KCS. Let whoever deal with the "over hill over dale" KCS topography, and we will just "roll 'em on down to the sea".

CN and KCS have already announced that they would be willing to sell KCS's Baton Rouge to New Orleans to ease regulatory concerns about competition.

Gilbert B Norman wrote: ↑Thu May 27, 2021 9:24 am Mr. Shortline, somehow when I addressed Loonies, I was thinking how the Canadian regulatory agency, Transport Canada, permits CN to "own" both Halifax and Prince Rupert. Somehow, the paucity of "berths" confronting shipping at present means the maritime companies have little choice other than to call at either.

That makes more sense. I guess the same "loonies" that allow CN exclusive access to Prince Rupert and Halifax might have a similar line of thinking to those who allow CSX exclsive access to places such as Tampa. CP and NS both have this problem where they serve less ports than their competitors. Just compare how many gulf ports CSX serves vs NS.

Gilbert B Norman wrote: ↑Thu May 27, 2021 9:24 am So to close back on topic, if CN-KCS is to come to pass, and "Lakes to Gulf" is what it's all about (Mexico a "sideshow" considering the political instability and that "the curtain could fall" in twenty or so years with the government - assuming they even have one - getting back in the railroad business), CN will have to divest either the KCS-L&A or the IC. As noted, my bet will be the KCS. Let whoever deal with the "over hill over dale" KCS topography, and we will just "roll 'em on down to the sea".

I don't think "Lakes to Gulf" is what it's all about for CN. With the execption of the Kansas City-Detroit "Speedway," all talk from CN i've seen has concerned Mexico. As for CP, I would say it's both a Mexico and a Gulf play. It's a Mexico play because of the massive amount of Mexico-Midwest traffic that is currently going over the road instead of rail, and it's a Gulf play becase CP doesn't have lines south of Kansas City. I am agreement on you that CP will ask for the Kansas City-Shreveport-New Olreans line, and the STB will give it to them. Prehaps that is the only way that CN-KCS doesn't end up with the D&ME-IC&E being "reregionaled."

JayBee wrote:CN and KCS have already announced that they would be willing to sell KCS's Baton Rouge to New Orleans to ease regulatory concerns about competition.

I wonder who will be the CN-approved operator for this line. I'm going to take a guess and say it will be a allied shortline operator like WATCO and G&W. CN will retain trackage rights to serve all the industries. Is this "balanced competition?" Not really.

I do wonder if CSX would be interested in the line? CN and CSX seem to have a close working relationship and handing the line to another Class I would go over much better with the STB than a shortline. CSX is in growth mode with the acquisition of Pan Am Railways and is expanding in the chemical busniess though buying up Quality Carriers.

Shortline614 wrote: ↑Thu May 27, 2021 11:41 am

Gilbert B Norman wrote: ↑Thu May 27, 2021 9:24 am Mr. Shortline, somehow when I addressed Loonies, I was thinking how the Canadian regulatory agency, Transport Canada, permits CN to "own" both Halifax and Prince Rupert. Somehow, the paucity of "berths" confronting shipping at present means the maritime companies have little choice other than to call at either.

That makes more sense. I guess the same "loonies" that allow CN exclusive access to Prince Rupert and Halifax might have a similar line of thinking to those who allow CSX exclsive access to places such as Tampa. CP and NS both have this problem where they serve less ports than their competitors. Just compare how many gulf ports CSX serves vs NS.

It's worth bearing in mind that exclusive CN service to Prince Rupert and Halifax long predates the current regulatory bodies in Canada. Prince Rupert was literally brought into existence in 1910 to serve as the Pacific terminus of CN predecessor Grand Trunk Pacific. And while the CP did have lines in Nova Scotia back in the day through their ownership of the Dominion Atlantic Railway they were isolated from the rest of the CP system-- the connection was via steamship from Digby to St. John, NB. It's not as if CN acquired sole control of these ports through mergers that occurred under the purview of Transport Canada.

All this talk of spin offs reminds me of the restrictions that CSX tried to place on CN . I would expect that CN would try to prevent any spin offs to be unable to be purchased by any class 1 or maybe even a class 2 ?

Shortline614 wrote: ↑Thu May 27, 2021 11:41 am I don't think "Lakes to Gulf" is what it's all about for CN. With the execption of the Kansas City-Detroit "Speedway," all talk from CN i've seen has concerned Mexico. As for CP, I would say it's both a Mexico and a Gulf play. It's a Mexico play because of the massive amount of Mexico-Midwest traffic that is currently going over the road instead of rail, and it's a Gulf play becase CP doesn't have lines south of Kansas City.

It would be great if Mexico could be an equal member of NAFTA (or whatever Trump chose to "rechristen" it). Just think, a deepwater Port with plenty of berthings, stevidorage costing half of what the ILWU thinks is the "going rate", and a "captive" line haul essentially free of highway competition. Lazaro Cardenas sure seems like "the hot setup".

But so long as incidents like this are daily occurrences down there, I think the maritime companies will sooner anchor, or dead steam, off LA waiting for a berth:

https://abcnews.go.com/International/wi ... d-77916411

Finally, and again, I wish I knew where CN is coming up with this "Detroit Kansas City Speedway" bit; as I said previously their route of Funk-CHI-IC-Gillman-IC-Springfield-GMO-KC is circuitous with Class 2 track and a bridge over "Ol' Man River" that I'll bet has to be doubled by any train of size.

Interesting article from Trains Newswire today where the chairman of the STB questions the need for rail mergers.

https://www.trains.com/trn/news-reviews ... r-mergers/

“I am all for promoting much more competition in the freight world, particularly among railroads and particularly with railroads getting more freight off the highways and onto the rails,” Oberman says. “But consolidating railroads even more than they have been, I don’t see the argument about why that would help them get more freight off the highways.”

What’s needed, Oberman says, is more rail competition, not less.

“The thing that’s impressed me most since I’ve come to the board is the lack of competition for most shippers in most parts of the country,” Oberman says. Many shippers are captive simply because they are located on a single rail line with no opportunity for service from a distant second railroad, he explains.

Very interesting because one of the major benefits touted by both CP and CN in their quest for KCS is how a combined railroad could take more trucks off the road. The remark for more competition is also very intersting. I wonder if the STB could force a railroad like CSX to give NS access to Nashville and Florida. The implcations of what Chariman Oberman don't bode well for either CPKC or CN-KCS.

may be as well CSX - Pan am ?

Gilbert B Norman wrote: ↑Thu May 27, 2021 9:24 amMr. Shortline, somehow when I addressed Loonies, I was thinking how the Canadian regulatory agency, Transport Canada, permits CN to "own" both Halifax and Prince Rupert.

Ahhh ... I thought you were referring to the Canadian coinage for a dollar. "Loonies talk" as in Canadian Dollars talk (CN making a huge cash offer for KCS compared to CP's cash offer).

Shortline614 wrote: ↑Thu May 27, 2021 2:06 pm

Very interesting because one of the major benefits touted by both CP and CN in their quest for KCS is how a combined railroad could take more trucks off the road. The remark for more competition is also very intersting. I wonder if the STB could force a railroad like CSX to give NS access to Nashville and Florida. The implcations of what Chariman Oberman don't bode well for either CPKC or CN-KCS.

And yet Chairman Oberman voted to approve the CP Voting Trust.

Approval of the CP Voting Trust is not approval of the transfer of control. The issue before the board was whether or not the Voting Trust was acceptable under the pre-2001 rules and would protect CP from controlling KCS before the STB approved the transfer of control. The board made a decision on that basis (provided a minor edit was made to prevent the trustee from holding parent company stock).

I believe CPKC had a decent chance of being approved without divesting lines. CNKC is claiming to be "end to end" with the divestiture of one 70 mile line. I expect that under the post 2000 rules CN and KCS have agreed to their Voting Trust will be under stricter scrutiny and additional divestitures or compromises will need to be made to get final approval.

The CN agreement to buy Pan Am was just sent back to CSX as incomplete, among the mentioned issues was a lack of projections for traffic growth, plus the effect on NS.