Not since BNSF tried to merge with Canadian National, has an attempt to merge 2 large rail entities been tried.
If it succeeds, it means a true North American railroad will exist and it might force a food fight between BNSF and Union Pacific for Norfolk Southern.
Per the WSJ:
Canadian Pacific Approached CSX About Merger Deal
(http://si.wsj.net/public/resources/images/MK-CP975_Railde_G_20141012162217.jpg)
Canadian Pacific Railway Ltd. CP.T -4.69% approached CSX Corp. CSX -2.57% about a combination that would unite two of North America's largest railroad operators, said people briefed on the matter, as the boom in North American energy reshapes the railroad industry.
CSX rebuffed the overture, made in the past week, the people said, and it isn't clear whether CP will persist.
But talk of a combination of such giants shows just how far the railroad business has come roaring back, as rails become ever-more-critical to moving North America's new abundance of oil.
North American railroads have been a major beneficiary of the energy boom, hauling millions of barrels of crude oil. Rail has stepped in where oil fields are developed but pipelines can't be built, including places like North Dakota, Pennsylvania, New Jersey and Canada's Atlantic Coast.
The half-dozen major railroads operating in the U.S. generated $2.15 billion hauling crude in 2013, up from $25.8 million in 2008, according to federal data.
A CP-CSX deal would give rise to an industry giant with a combined market value of about $62 billion and, potentially, an increased ability to exploit the North American energy boom.
CSX-controlled rails run from the Midwest to refineries on the U.S. East Coast, but the railroad lacks direct access to North Dakota oil fields. CP does have access to North Dakota oil-loading terminals. A deal would potentially create a single railroad operator that could haul crude from oil fields all the way to fuel-making plants in the Northeast.
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A combination of the two would be one of the largest deals in an already active year for mergers and acquisitions, though a rarity in the railroad sector, which has seen few big tie-ups in recent years. It would eclipse in size Berkshire Hathaway Inc. BRKB -0.24% 's $26 billion deal for Burlington Northern Santa Fe Corp. in 2010.
CP, Canada's second-biggest railway by revenue, has a market value of about $32 billion. Activist investor William Ackman is on the company's board, and his hedge fund has a big stake in it. Florida-based CSX, the third-largest U.S. carrier, has a market value of about $30 billion. Combined, the two have about $18 billion in annual revenue and more than 35,000 miles of track.
Even if CP presses the effort, the potential obstacles could be formidable. The U.S. Surface Transportation Board, which oversees railroads, has a history of intervening in M&A in the industry. In 2000, a proposed combination between Burlington Northern and Canadian National Railway Co. CNR.T -3.02% , CP's larger rival, was dropped amid resistance from the STB.
Winning regulatory approval for a proposed merger tends to be more difficult when it isn't welcomed by the target. U.S. national-security officials would also be expected to look closely at any proposed deal between the two, under laws governing foreign ownership of infrastructure such as railroads that is deemed critical.
Either way, the approach is a bold move for CP, which had revenue of 6.1 billion Canadian dollars last year ($5.5 billion), making it the smallest of North America's top six railroads. It is two years into a turnaround effort that began when Mr. Ackman successfully fought to change its corporate strategy, shake up the board and install a new chief executive.
CP shares have risen sharply under CEO Hunter Harrison, who has cut costs and improved margins.
The company has staked much of its future on transporting oil from Canada's energy fields in "crude-by-rail" shipments, an alternative to oil pipelines. It has said it expects one-third of its targeted revenue growth over the next four years will be driven by crude-by-rail and plans to invest heavily to expand its operations in Alberta and North Dakota to boost the effort.
CP has said it expects to move about 200,000 carloads of crude in 2015, up from 120,000 this year and 90,000 in 2013.
CSX's rail network links to five oil terminals and six refineries along the eastern seaboard, which can be reached from the Chicago interchange within 48 hours, according to the company's website—crucial assets in efforts to export North American production.
But the new oil trade comes with potential problems. Oil from shale rock is gassier than other crudes and could be more flammable in case of a derailment. Several high-profile oil-train derailments and fires have pushed government regulators on both sides of the border to change rules related to shipping hazardous cargo by rail.
At a recent investor event in New York state, CP's Mr. Harrison said railroad M&A "makes sense," as it would help alleviate traffic-congestion issues at the Chicago interchange, an integral gateway that links the U.S. Midwest with East Coast and West Coast ports.
"You got to have somebody to dance with, and I don't know anybody who wants to dance now," he added. "My experience in the past, and I've had too much of it, it's more about social and egos than it is true bottom line value to the shareholder."
Mr. Ackman's hedge fund, Pershing Square Capital Management LP, owns about 8% of CP after selling some shares. Mr. Ackman and his partner Paul Hilal sit on CP's board.
CSX is also no stranger to shareholder activism. In 2007, the Children's Investment Fund and 3G Capital launched a proxy battle to overhaul CSX's board. The funds successfully elected directors to the company's board in 2008, but TCI sold off its shares in CSX less than a year later after the railroad's stock price dropped.
CSX is also familiar with the rough-and-tumble world of M&A. In 1997, its merger agreement with Conrail was complicated when Norfolk Southern Corp. NSC -2.91% launched a hostile bid for Conrail, whose shareholders voted down the CSX deal. The monthslong saga ended with CSX and Norfolk Southern divvying up Conrail's assets.
Current CP Rail System Map.
(http://www.gov.mb.ca/jec/invest/busfacts/images/cp_network.gif)
Current CSX System Map
(http://upload.wikimedia.org/wikipedia/commons/thumb/f/fa/CSX_map.svg/800px-CSX_map.svg.png)
(http://nicolasrapp.com/wp-content/uploads/2011/09/RAIL_MAP.gif)
(http://iveybusinessjournal.com/wp-content/uploads/2007/05/mcmillan_map1_05071.gif)
CSX stock up 12% this morning on the news.
Thanks for the maps! Looking at them you can see how the deal makes perfect sense.
This is the only thing that has moved CSX stock in a while.
Well, if this is going to happen then Canadian Pacific is going to have to sweeten the deal or attempt a hostile:
http://m.bizjournals.com/jacksonville/news/2014/10/12/csx-turns-down-canadian-pacific-merger-offer.html
I don't like this. I'm glad that CSX turned CP down.
Quote from: I-10east on October 13, 2014, 10:01:58 AM
I don't like this. I'm glad that CSX turned CP down.
Why? CSX hasn't been a stellar performer despite traffic growth. Looks like CP has better management and has taken better advantage of the opportunities of the past few years. I'm a big fan of railroads and have a good deal of stock in several, but sold off my CSX stock a while back since it wasn't doing anything. My CN stock has gone up over 150%, and UP over 80%.
CP sold the Delaware & Hudson just before the CSX thing went public. Supposedly to make it look better to the regulators.
CP Chairman Hunter Harrison is a wily executive and knows the rail game very well.
He has turned around Illinois Central, then sold it to CN. He then turned CN around and was about to retire when Hedge Fund City called him to turn around CP. CN objected but finally relented.
CP had a very undisciplined business culture and in just a couple of years he has reorganized them. He knows that CP is limited by its current route geography and will need a major M&A to bring the most value to the shareholders.
Clearly the market has shown that CSX is not the best performer and so it is logical that CP would pursue them first.
Should be interesting to see how CSX resists because Harrison has a huge upside to his management style. It will be a matter of time before outside pressure builds on CSX to start performing or let Harrison run the show.
Quote from: Dog Walker on October 14, 2014, 10:59:26 AM
Why? CSX hasn't been a stellar performer despite traffic growth. Looks like CP has better management and has taken better advantage of the opportunities of the past few years. I'm a big fan of railroads and have a good deal of stock in several, but sold off my CSX stock a while back since it wasn't doing anything. My CN stock has gone up over 150%, and UP over 80%.
CSX is still a solid mainstay despite not having astronomical growth. Is everything about growth growth growth, until it eventually becomes unsustainable? I would rather see Jax keep a Fortune 500 company, than CSX become a subsidiary or worst "Canadian Seaboard" a mega railroad HQ'd in Calgary. I'll be all for a CSX takeover of CP, but I know CP don't have that in mind.
^^^You don't sound like a shareholder (of anything?). Yes, everything is about growth. Always and forever more. In this case, you want the stock to grow (if you're the 98% of long shareholders as opposed to short interest).
^^^So nevermind the state of CSX being in Jax that's not important, it's all about 'growth' of a company in the hands of who knows who (maybe someone in Alberta) right??? There's absolutely freaking no cause for concern on why CP trying to be buddy buddy. Growth first, CSX being in Jax second, gotcha....
Welcome to capitalism?? Jacksonville doesn't own CSX, and while it may be some source of "pride" for you to have them headquartered in the city you live in, companies get bought and sold, merged and split, every day, all across capitalist economies across the world.
There are dozens of F500 companies headquartered where I live. This sort of news story is a weekly occurrence it seems. The more headquarters and corporations you have, the more this sort of thing goes on.
CSX is basically an operator of a public utility, so to speak. There are hardly any other industries as regulated as the railroads - they are pretty much dinosaurs of companies, here to stay, but hardly changing, ever, and mergers/buy-outs almost never happen anymore. So as far as I'm concerned, this has yet to be a substantive news story, until something happens.
Quote from: simms3 on October 14, 2014, 01:49:11 PM
Welcome to capitalism??
Which many think is only a 'Republican thing' but it's also a cutthroat 'invested shareholder' thing. CSX is literally one of the four major railroads like Monopoly in the US. IMO they will be fine without any CP deal. Shares aren't through the roof, but it's far from a 1929 downward spiral, as they remain stable.
^^^Well, I guess that Micheal Moore had it wrong then.
Quote from: I-10east on October 14, 2014, 02:12:17 PM
Quote from: simms3 on October 14, 2014, 01:49:11 PM
Welcome to capitalism??
Which many think is only a 'Republican thing' but it's also a cutthroat 'invested shareholder' thing. CSX is literally one of the four major railroads like Monopoly in the US. IMO they will be fine without any CP deal. Shares aren't through the roof, but it's far from a 1929 downward spiral, as they remain stable.
You are a conservative, right? And conservatives believe in the free markets, private property rights, and de-regulation, generally speaking, right?
So to that end, piping away on your thoughts on what some other company should or should not do with their time, resources, and money, especially as it pertains to something as "harmless" as a merger
(as opposed to say not using their resources to maintain their rail lines, resulting in catastrophic accidents that affect innocent lives or long term environmental damage, or using their resources to condemn your home without proper due process to build an unnecessary railroad to nowhere for political gain as an indirect kickback),is really hypocritical. Start complaining once you have a financial stake in the game (i.e. you own shares, and not just one), or if the merger will somehow result in some sort of bodily, financial, or emotional distress to you/your immediate loved ones and dependents. Or don't complain at all what another company chooses to do or not to do with its resources.
To I-10....I am not trying to advance the demise of CSX. I am explaining why CSX is the preferred target of stock hawks and now another railroad.
They underperform compared to their peers and their management has shown resistance to outside scrutiny and governance.
BNSF is currently the model that people refer to for business efficiency in rail. Warren Buffett bought them out and took them private. So they arent as visible as they once were. But he bought them becuase they are well run.
CSX has made some improvements since the whole board debacle with TCF, but compared to their peers they still lag.
I dont think this is a "growth at any cost" moment, this is someone who has found a higher return through some efficiencies.
It is impossible to know where a HQ will be post ANY merger, so assuming it wouldnt be in Jacksonville is premature and reflects a lack of confidence in the city more than anything.
Quote from: spuwho on October 14, 2014, 02:38:47 PM
They underperform compared to their peers and their management has shown resistance to outside scrutiny and governance.
From what I hear, Canadian Pacific isn't exactly ran like well oiled machinery either.
I agree...CP was run poorly. That is why they went through a management shake up and they have a new management team with a history of shaking things up and making prompt turnarounds.
I would rather see a Fortune 500 company stay in Jacksonville, than see some other company buy them out and move the HQ. Better yet, if there's a merger, I would rather see the new, bigger company be based in Jacksonville.
This seems unlikely however it would trigger an avalanche of mergers, leaving only 2 or 3 major North American railroads. Combining these systems would be a major undertaking and would get a lot of scrutiny from the STB.
You could even end up with BNSF-NS-CN and UP-CSX-CP one day. I'd bet on Omaha and Fort Worth as headquartes cities.
There is a good recap of the merger options written by Mike Blaszak, who was a transportation attorney for the Santa Fe buyout years ago.
http://trn.trains.com/news/railroads/2014/10/analyzing-the-merger-puzzle
Not sure if this is behind a paywall, but its a good summary of the crystal ball on the merger players.
Quoteliterally no one thinks this.
That is for darn sure out here on this board.
Look at what CSX has as its bread and butter - coal. The coal it sends to utilities and exports to Europe and South America is not the same as the coal mined in the Dakotas, the eastern coal is dirtier and has more issues with it. If Obama has his way, it will cost utilities a mint to change to adopt to the pollution targets and doing so might be best served with cleaner coal and other changes, so CSX will have fewer buyers of coal. They move other items but the bread and butter of the Chessie system was coal.
Norfolk southern has a similar issue as it has the same issues with coal on the east coast. I see them dancing with UP for that east west deal, BNSF is already a monster. Either way, the short-line railroads are the real winners here, as the biggies will have to give up a lot to get a deal done.
If CSX goes away from Jax, so be it, like Simms said, CSX is really just a transportation utility so be it if they get sold and moved out of Jax. Hey, we got GE and we're building valves for the oil industry! Woo Hoo!
::)
Quote from: Lunican on October 14, 2014, 06:18:17 PM
This seems unlikely however it would trigger an avalanche of mergers, leaving only 2 or 3 major North American railroads. Combining these systems would be a major undertaking and would get a lot of scrutiny from the STB.
You could even end up with BNSF-NS-CN and UP-CSX-CP one day. I'd bet on Omaha and Fort Worth as headquartes cities.
(https://farm4.staticflickr.com/3931/15364590247_02e30e42d1_z.jpg)
I think that's about right Lunican, though I'd give Kansas City Southern to CP RAIL before they go anywhere else. Part of this, including the more or less recent CN takeover of the Illinois Central was to give them access to warm water ports. Most rail traffic flows east-west, but Canadian grain and oil, flows south, Mexican assembly products flow north. Kansas City Southern is a lightweight as far as corporations go, but has done some pretty freakin' amazing things over the last 20 years including beating UP in a Mexican buy-out, then cobbling together a 'system' through buying up connecting shortline links and purchasing then rebuilding long abandoned right-of-way stretches through south Texas.
CP RAIL on the other hand is recovering from years of some very bad decision making at the top which culminated in sacking the CEO. They now seem to be getting their act together and a try for CSX is just the second volley in what is almost certainly going to shake out as two great continental systems. In any case, unless this city get's its own act together and REALLY goes to work to woo CP, UP, CSX AND KCS executives we'll soon have another big empty tower downtown.
I might add the KCS was voted as an exception to the Class 1 merger rules the STB passed when BNSF and CN tried to merge. The exception passed 2-1.
It just means that anyone attempting to buy or merge with the KCS will not be subject to the Class 1 super-merger rules and will be judged solely on merit.
And KCS will lose their Mexican monopoly with TFM in less than 10 years when Texas Pacifico rebuilds the International Bridge over the Rio Grande at Presidio that Santa Fe originally built and reconnect with Ferromex. That route also takes them to the car suppliers/manufacturers in Chihuahua and on to the Pacific port of Topolobampo, Sinaloa.
This means China Inc. could bypass US West Coast Ports completely and route traffic to KCMO directly.
But I digress.