CP/NS: The end game

November 16, 2015

I am going to make a prediction: A purchase of Norfolk Southern by Canadian Pacific Railway will never make it to the Surface Transportation Board for its merits to be approved or rejected. The reason is simply this: Neither BNSF Railway nor Union Pacific can allow this to happen. It is inconceivable that either of the western rail giants would let one of the two eastern railroads be snapped up and not be part of that deal. Because if the unthinkable happens, then there is only CSX Transportation left in the east to mate with either BNSF or UP, and therefore one western rail giant or the other will be shut out of being part of a national network, and thus become marginalized.Website Insert Gathering of Professionals 1 copy

So it doesn’t matter that CP’s chief executive, Hunter Harrison, visited his NS counterpart, James Squires, on November 13 to propose a marriage, or that Squires was reportedly “cool” to the idea. Odds are that both BNSF and UP are also talking with Squires in the background. For all I know, Squires is auctioning his company among BNSF, CP and UP.

I read somewhere that Berkshire Hathaway already owns a huge railroad (BNSF) and won’t want to double down. That idea is silly. Berkshire’s Warren Buffett has no choice but to double down with either NS or CSX. If BNSF sits by and lets NS falls into the hands of CP, while UP swoops down and gathers up CSX, then BNSF is frozen out of the eastern half of the U.S. In that case, its only choice would be to pay the even bigger bucks to buy both CP and NS.

Read Fred Frailey’s full commentary in his TRAINS Magazine blog by clicking here.

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