CP + CSX: “No further talks are planned”

Written by William C. Vantuono, Editor-in-Chief
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Breaking its relative silence, Canadian Pacific Railway announced Oct. 20, 2014 that it is no longer pursuing CSX as a merger partner. “Exploratory conversations held with CSX Corp. about a possible business combination have ended,” the railroad said in a statement. “No further talks are planned.”

“CP proposed an integrated coast-to-coast combination that would improve customer service, promote competition, alleviate congestion in North America—specifically the key Chicago gateway—and generate significant shareholder value,” said CEO E. Hunter Harrison. “Such a business combination would offer creative alternatives for shippers, greater fluidity, increased capacity and improved efficiency industry-wide.”

“While regulatory concerns appear to be a major deterrent for many railroads considering combinations, CP believes that given the right structure between the right players, and having thoughtful considerations and remedies to address shipper concerns, regulatory approvals are achievable,” Harrison said. “The North American rail industry is confronted today with the challenges of moving more freight than ever and the prospect of moving even more as oil production, crop yields, and consumer demand grow alongside the economy. CP is convinced that the significant problems that beset the industry now will only worsen over time if solutions aren’t put in place immediately. A pro-competition, customer-friendly, safety-focused railway combination is one such solution that could not be ignored on its merits by regulators.”

“Concerns about its ability to receive the approval of the Surface Transportation Board and other regulatory agencies are the primary reason that prompted CP to end the merger talks, in our opinion,” said Cowen & Co. Managing Director and Railway Age Wall Street Contributing Editor Jason Seidel. “It is hard to imagine that the regulators, who have been listening intently to shippers’ worries about rail service and pricing issues, would give their blessings on a deal that could exacerbate service challenges, at least in the near term, and further boost the railroads’ pricing power.”

“CP will likely continue to look for ways to streamline its operations in Chicago, and that could mean the company goes after rail asset purchases that would be much less likely to face major regulatory hurdles,” Seidl said. “CP has unsuccessfully attempted to acquire the Belt Railway Company of Chicago, which is jointly owned by six Class I’s. We would not be surprised if the company renewed its efforts to acquire the Belt if it cannot identify other assets.”

“No matter that CP and CSX say merger talks are over,” noted Railway Age Contributing Editor Frank N. Wilner. “The door has opened.” See Wilner’s editorial on the matter by clicking HERE.

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