The latest on bidding for KCS

BoxcabE50 Aug 10, 2021

  1. Philip H

    Philip H TrainBoard Member

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    https://www.trains.com/trn/news-rev...ts-kcs-merger-deadline-applauds-stb-decision/

    "CP’s Aug. 10 merger offer to KCS still stands, Creel says, but he stressed the importance of a Sept. 12 deadline CP set for the KCS board to accept its $300 per share offer. “Our appetite and willingness to keep that offer on the table forever does not exist,” Creel says."
     
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  2. Philip H

    Philip H TrainBoard Member

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    It also appears the STB has told every other Class 1 to knock off thinking about mergers too:

    Buried on Page 31 of the board’s decision is a 105-word passage that – aside from a potential Canadian Pacific-KCS merger – slams the door shut on future Class I combinations. Yes, in just three sentences, the board explained why we’ll never see a transcontinental merger under the current review rules:

    “Neither Applicants nor the Board can perfectly predict future strategic responses to a CN-KCS transaction. However, a simple geographic analysis of the rail network would suggest that a carrier in CP’s position, i.e., one that would be the smallest carrier by far after a CN-KCS combination, might need to look for potential strategic alliances, which might in turn trigger yet more strategic responses by other rail carriers,” the board wrote. “Approval of a CN-KCS voting trust could speed up downstream consolidation movements prior to the Board even having had an opportunity to assess them based on the record yet to be developed in this proceeding.”

    Substitute any other combination for CN-KCS – such as BNSF Railway-Norfolk Southern or Union Pacific-CSX Transportation – and you see the problem. Any big merger would prompt the remaining railroads to seek merger partners, and the dominoes would begin to fall toward two go-everywhere systems that blanket the U.S. and Canada.

    That’s not in the public interest, the STB says, because a second merger application would arrive at its front door before the board had a chance to review the first megamerger. In other words, this short passage in the board’s CN-KCS voting trust decision is, in effect, a merger moratorium."

    https://www.trains.com/trn/news-rev...n-regulators-shut-the-door-to-future-mergers/
     
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  3. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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  4. HemiAdda2d

    HemiAdda2d Staff Member TrainBoard Supporter

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    I think this opens the door for more spinoffs to regionals and shortlines to grow. If mergers are no longer tolerated, there's no reason class 1s who want to cut costs shouldn't consider passing some lines to smaller operators that do want the traffic and wish to serve more customers.
    Am I out in left field on this?
     
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  5. Philip H

    Philip H TrainBoard Member

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    Maybe not left field completely . . . probably closer to the sweet hole between second and short . . . I honestly don't know how much of that "excess" capacity still exists in the Class 1 systems.
     
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  6. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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    It is an interesting question- how much of any remaining "fat" could they prune away? I am sure the bean counters within those companies keep a sharp eye for any such track. In the past there have been a few occasions of cuts which have left us wondering...

    Also, what currently idle line might an smaller operator be able to successfully revive? I am sure much has already been scrutinized, but is there anything with some potential, somehow?
     
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  7. mmi16

    mmi16 TrainBoard Member

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    From the start I didn't see anyway the STB would let CN get KCS. CN is too established in the areas that CP wants KCS to tap for CP.

    CN only wanted enter the deal to screw with CP.
     
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  8. Hardcoaler

    Hardcoaler TrainBoard Member

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    Some months back, I read The Railroad Mergers and the Coming of Conrail by Richard Saunders and really enjoyed it. A significant portion of the book covers rail mergers over the past century to find the needlessness and disfunction of many. I'm a Capitalist through and through, but Saunder's studies find that that competitive advantages can often be gained and retained by coordinating train operations between roads. There's no doubt that the archaic ways of the ICC destroyed a number of railroads, that a number of mergers and abandonments were necessary, that union work rules needed a makeover and that the Staggers Act was a salvation for the industry, but a lot of debt and ruined dreams could have been avoided by better management.

    [​IMG]
     
    Last edited: Sep 5, 2021
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  9. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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    Mergers used to be to increase competition between companies. (Long term investment.) Great for the customers and the general public. Until Ben Heineman perfected to method of merging to eliminate competitors. (First victim, the Minneapolis & St. Louis Railway.) Thereafter began the tear them out and digest the assets to increase profits routine which plagues us to this day. (Short term, quickie pumping up of the books, which often loses effects between one and a half and three years, then requiring another merger to puff up the paper work $$$ again.) You cherry pick their lines, assets, customers and people, discarding all else. It's a losing game, except for the investors. A person could compare it to a drug addict, coming down from a high and needing yet another fix.
     
  10. mmi16

    mmi16 TrainBoard Member

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    In many cases railroads are successful in spite of their managements, not because of them.
     
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  11. Philip H

    Philip H TrainBoard Member

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    The pruning wouldn't be "fat" per se, but overlapping facilities.

    Take Baton Rouge - both KCs and CN/IC have rather substantial yard in Baton Rouge, but they serve differing customers/refineries etc. Had the STB allowed the merger to go forward I would have expected some of that to be sold off.
     
  12. Hardcoaler

    Hardcoaler TrainBoard Member

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    Yep! Incompetent managements sometimes cook up crazy deals to lay down a smokescreen to cloud their blunders, often using "pro forma" estimates to justify overpriced acquisitions and underpriced asset sales. I often see this play out in manufacturing and technology companies, one of the most notorious being GE under the "leadership" of Jeff Immelt beginning in 2001.

    upload_2021-9-7_13-11-47.png
     
    Last edited: Sep 7, 2021
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  13. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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  14. acptulsa

    acptulsa TrainBoard Member

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    "Hohn said in a statement he believes the pursuit of Kansas City Southern exposed a basic misunderstanding by CN’s board of the industry and the regulatory environment."

    He's not the only one.

    Management seems to be operating on the belief that if the competition wants it, they must swallow it first. There was more than a little of that disease running through Penn Central's management, too.

    The stockholders have good reason to lose confidence.
     
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  15. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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    “The CEO should also be replaced with a railroader that has a proven track record in order to create a much-needed culture of operational excellence.”

    What a novel concept! Having someone running the show, who actually knows what a railroad is, instead of an industry disconnected asset manager. Wow. The clock rolls back about six decades with this idea! It used to be that people at the top, started at the bottom and worked up. Thus becoming intimately familiar with both the business and their company. Then six decades ago, began the ladder jumpers. Bringing in people who did not start bottom rung, often straight out of (so-called) college, completely inexperienced, who knew nothing but book theory. Enter the bean counter era. Which has superficially seemed good, in reality it has been very messy- such as this current example. (Much to the delight of the trucking industry, and the hiking/biking trails theorists.) This is one basic leadership ideal which needs to return.
     
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  16. Hytec

    Hytec TrainBoard Member

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    Sadly, this has been true for many great corporations, not just railroading. I offer General Electric, the world's second largest corporation in 1970. Now an emaciated shell of its former self, whose stock isn't worth anything even as wallpaper.
     
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  17. mmi16

    mmi16 TrainBoard Member

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    The problem is that TCI is nothing more than a Hedge Fund of asset managers on steroids. Prior to the 2008 Economic collapse they bought voting control of CSX, becoming known a The Children's Fund'. Before they could do any damage, the collapse forced them to sell off most of their interest to be able to keep their business from bankruptcy. What will happen this time around with CN and todays financial markets will play out in the up coming months.
     
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  18. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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    Well I guess we will find out what happens, as they have now supposedly begun the required actions for attempting a takeover of CN.
     
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  19. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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  20. Kurt Moose

    Kurt Moose TrainBoard Member

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    [​IMG]
    CP Rail will be HUGE if this goes thru!!
     
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