When KCS broke up with CP for CN, they had they to pay 700 million. CN payed this on behalf of KCS. Correct me if i'm wrong, but didn't CN have to pay KCS 1 billion since the voting trust was denied? I assume the CN-KCS breakup fee is similar to the CP-KCS one, but I can't find anything for certain.
CN has potentially lost upwards of 2.4 billion with no absolutely no gain. No wonder the shareholders are in revolt.
Anyways, i'm glad that KCS has picked CP as it's merger partner. While CN-KCS would have offered more short-term benefits, I think CPKC is a better long-term solution. All the Class Is would be in balance. 2 in the East, 2 in the West, 2 in Canada both reaching the Gulf of Mexico. Not to mention that CPKC can be the perfect test kitchen for any future Class I merger that is looking more and more attractive.
Despite my praise, I will admit that CPKC does have some shortfalls. 30 billion for KCS seems a bit much, and could mean the future CPKC could be rather cash-strapped; however, I don't believe this will be as big of a problem as one might expect for 2 reasons:
Reason 1: CP has constantly underpromised and overdelivered when it comes to how much money they can make off of new initiatives. CP predicted they could make 700 million off of their carload initiative, it turned out to be 2 billion. The CMQ (with the notable exception of Searsport) has exceeded all expectations with CP being able to wrestle away some key contracts away from CN, raking in the case in the process. Keith Creel has said that CPKC would generate 900 million in new traffic its first 3 years. Don't believe him, the real number is certainly much more.
Reason 2: Just because a company is cash-strapped or has a lot of long-term debt, doesn't mean improvements can't be made. Sure, it makes it harder, but not impossible. Let's look at history for reference. KCS racked up a lot of debt during their MSRC/GWWR/TM/TFM buying spree in the 90s and 2000s, yet yet still somehow found a way to improve the Meridian Speedway and to completely rebuild the Macaroni Line. CPKC will just have to pick their battles very carefully and find ways to think outside of the box.
So what improvements would the new CPKC have to make? Closing the Chicago-Detroit gap for one. CP currently uses trackage rights over NS and haulage rights over CSX between Chicago and Buffalo; however, I don't think this would be enough. CP needs its own route to tie the IHB in with the Detroit River Tunnel. It can do this by forming a CSX-CP joint venture consisting of the former Pere Marquette. I say joint venture rather than outright purchase because I don't think CSX would sell, plus it saves CPKC money, going back to the 'cash-strapped" issue.
The biggest issue the new CPKC would have to deal with are the ex-DM&E/IC&E rail lines, which would go from sleepy secondary status to the linchpin of the new railroad. I can't find much information about ex-DM&E/IC&E lines under CP so I will go off of what others here have said and assume it is a Class II (25mph) line with little to no CTC. In that case La Crosse-Chicago-Kansas City would need to be upgraded to Class III (40mph) at the minimum and proper CTC would need to be installed along the entire length of the route. CP did say they would commit 30 million towards upgrading the line, but to me this doesn't seem enough.
Barbecuing in Chessie's backyard.