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Canadian National, Canadian Pacific in Tug of War for Kansas City Southern


Executive director of the Soy Transportation Coalition Mike Steenhoek, told DTN in an email, “While the Canadian Pacific proposal clearly has and will likely continue to stimulate further consolidation exploration among Class I railroads, I believe the proposed Canadian National acquisition will inject even more energy into exploring railroad consolidation. As I’ve mentioned earlier, I do not know of many agricultural shippers who would welcome such a prospect.

“A Canadian National/Kansas City Southern railroad would create the third largest Class I railroad with a network unique and distinct from the other Class I railroads — a Y-shaped network that would provide an enhanced north-south corridor through the middle of the U.S. with access into Mexico and then, at the junction with Chicago, branching to the east and west coasts of Canada. If this were to occur, it is reasonable to assume the other Class I railroads would intensely explore how they can merge, acquire or consolidate in order to enhance their competitiveness.”

Steenhoek added, “As one can see from reviewing the current Canadian Pacific and Kansas City Southern network maps, the two railroads currently have no service overlap. There is a very limited amount of network overlap between the current Canadian National and Kansas City Southern railroads. Whenever a merger or acquisition is proposed, red flags are particularly raised among customers when the two companies have a similar geographical footprint. This does not guarantee that significant portions of service will be disbanded or eliminated, but it often portends that. While the Canadian National and Kansas City Southern networks have very little overlap, the fact that there is no overlap between Canadian Pacific and Kansas City Southern will likely elicit less concern.”

Additional information from the perspective of the two competing railroads can be accessed at the following:

— Canadian Pacific website describing the potential acquisition: https://futureforfreight.com/…

— Proposed CP-KCS rail network map: https://futureforfreight.com/…

— Canadian National website describing potential expansion: https://www.connectedcontinent.com/…

— Proposed CN-KCS rail network map: https://www.connectedcontinent.com/…

“Even though the two competing proposals will increase in clarity as time proceeds, I feel it is safe to say that the red flags and alarm bells that usually occur with any proposed merger, acquisition or consolidation are more pronounced with the proposed Canadian National acquisition of Kansas City Southern than the proposed Canadian Pacific acquisition,” added Steenhoeck.

RESPONSE FROM CANADA ON PROPOSED MERGERS

“The initial announcement of CP’s plan to take over the KCS railway in March was well received by various agriculture groups on the Prairies. While the majority of Canadian grain flows either east or west, the idea of streamlining north-south movement, potentially opening up new markets or even accessing new export facilities, is viewed as appealing and a means of growing the industry over time. Since CN’s involvement, there has been less coverage from an ag industry perspective,” said DTN Canadian Grains Analyst Cliff Jamieson.

“CN’s topping bid, however, has been huge news from a Canadian business perspective, with nonstop coverage from business writers, broadcasters and stock analysts, as these competing companies play out their attempts to land this deal in what is viewed as a very public and unique fashion. CEOs of both CP and CN have released public letters to the CEO of KCS, while the latest is a letter made public by CN directed to the U.S. regulator, the STB,” said Jamieson. “Attempts are being made to discredit each other’s offer, while persuading KCS shareholders, persuading potential customers as well as the U.S. regulator. Canadian industry hasn’t seen an event such as this in some time.”

BNN Bloomberg, Canada’s business news network, stated, “These two companies have been battling for more than a century; this is just the latest chapter.”

Jamieson concluded, “Now we wait to see how the U.S. regulator responds to concerns of what is described as ‘modest’ overlap between CN and KCS operations. Some analysts think CP will come back with an even higher offer and feel they are positioned to do so, although CP has stated this will not happen. It is also expected that KCS shareholders will respond within the next few weeks.”

Both proposed acquisitions must be reviewed and ultimately approved by the STB. Here is a link to the most recent filings concerning both proposals:

https://prod.stb.gov/…

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow her on Twitter @MaryCKenn



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