Western Railroad Discussion > How the CP/KCS and CN/KCS Deals Actually Compare

The two present deals for KCS shares are both a combination of cash and stock:
CP - $90 + 0.489 Shares CN - $200 + 1.059 Shares
Closing share prices yesterday for the three relevant stocks were:
KCS $295.50 CP $355.12 CN $110.15
Deal total cash values equivalents for a KCS share based on these closing prices were:
CP Deal $263.65 - Less Than a KCS Share
CN Deal $316.65 - About $20 Over a KCS Share
It’s really just beginning.
ALLEN

Here is a link to an interesting Logistics Management article about CN's bid for KCS.
https://www.logisticsmgmt.com/article/cn_throws_its_hat_into_the_ring_to_acquire_kcs_with_33.7_billion_proposed_o
You do not have to be a subscriber to read this article.



Edited 1 time(s). Last edit at 04/21/21 13:16 by krm152.

Something is either misquoted or confusing in a statement from CN quoted in there:"CN EVP & Chief Operating Officer Rob Reilly highlighted various benefits of this proposed acquisition on the Webcast, including:

• extend CN’s reach by adding a line to Detroit and Kansas City, creating faster, safer, and more economical rail option for shippers who currently rely on trucks

How does KCS "add a line to Detroit" for CN? Maybe that is supposed to mean adding a "lane" between Detroit and KC?
 

I'm looking to the aftermath......one of these will win and the other will take his ball and go home.....not.......the loser will go trolling for someone else to merge with.......but who?

inCHI Wrote:
-------------------------------------------------------
> Something is either misquoted or confusing in a
> statement from CN quoted in there:"CN EVP & Chief
> Operating Officer Rob Reilly highlighted various
> benefits of this proposed acquisition on the
> Webcast, including:
>
> [*]extend CN’s reach by adding a line to Detroit
> and Kansas City, creating faster, safer, and more
> economical rail option for shippers who currently
> rely on trucks
>
> How does KCS "add a line to Detroit" for CN? Maybe
> that is supposed to mean adding a "lane" between
> Detroit and KC?
>  

Fairly certain they are referencing abilty to connect to KCS via Gateway Western at Springfield IL with a subsequent single line between KC-Chicago-Detroit.

Although not surprising, this is a strong sign CN will ask for the Gateway Western or at least joint ownership from Springfield to KC in case their KCS bid fails. I'd be surprised at the end of whatever happens that they don't have some form of ownership/access on this route.

While it is highly unlikely UP and to a lesser degree CSX place a bid on KCS, I would also put money on both likely making an argument for at least joint ownership of the Gateway Western (bypass St. Louis for UP and access to KC for CSX). In this STB era of requiring increased competition, this will be hard to avoid by whatever happens to KCS as I would bet money on the Gateway Western seeing a massive influx of cash via a multiple ownership (open access corridor) situation. A joint ownership via 25% CP, 25% CN, 25% UP, and 25% CSX is possible since all have a solid argument for why they should have that route.



Edited 4 time(s). Last edit at 04/21/21 07:11 by AaronJ.

engineerinvirginia Wrote:
-------------------------------------------------------
> I'm looking to the aftermath......one of these
> will win and the other will take his ball and go
> home.....not.......the loser will go trolling for
> someone else to merge with.......but who?

...or KCS will be broke into chunks with nobody really winning or losing but just absorbing some new lines and/or trackage rights.



Edited 1 time(s). Last edit at 04/21/21 06:26 by AaronJ.

inCHI Wrote:
-------------------------------------------------------
> Something is either misquoted or confusing in a
> statement from CN quoted in there:"CN EVP & Chief
> Operating Officer Rob Reilly highlighted various
> benefits of this proposed acquisition on the
> Webcast, including:
>
> [*]extend CN’s reach by adding a line to Detroit
> and Kansas City, creating faster, safer, and more
> economical rail option for shippers who currently
> rely on trucks
>
> How does KCS "add a line to Detroit" for CN? Maybe
> that is supposed to mean adding a "lane" between
> Detroit and KC?
>  

Unless CN thinks they can work out a trackage rights deal Springfield-Detroit on NS.

Edit: Maybe just Springfield-Tolono then Matteson-Griffith to Detroit. NS is more direct but CP already has rights Detroit to Butler and it is a mostly single track rr. But it's fun to speculate.

Posted from Android



Edited 2 time(s). Last edit at 04/21/21 08:21 by cnr6776.

cnr6776 Wrote:
-------------------------------------------------------
> inCHI Wrote:
> --------------------------------------------------
> -----
> > Something is either misquoted or confusing in a
> > statement from CN quoted in there:"CN EVP &
> Chief
> > Operating Officer Rob Reilly highlighted
> various
> > benefits of this proposed acquisition on the
> > Webcast, including:
> >
> > [*]extend CN’s reach by adding a line to
> Detroit
> > and Kansas City, creating faster, safer, and
> more
> > economical rail option for shippers who
> currently
> > rely on trucks
> >
> > How does KCS "add a line to Detroit" for CN?
> Maybe
> > that is supposed to mean adding a "lane"
> between
> > Detroit and KC?
> >  
>
> Unless CN thinks they can work out a trackage
> rights deal Springfield-Detroit on NS.
>
> Edit: Maybe just Springfield-Tolono then
> Matteson-Griffith to Detroit. NS is more direct
> but CP already has rights Detroit to Butler and it
> is a mostly single track rr. But it's fun to
> speculate.
>
> Posted from Android

I'm about 99.999% sure they are talking about KC to Springfield via Gateway Western, then existing track to Matteson, switch to the ex-EJ&E to Griffith, then ex-Grand Trunk to Detroit.



Edited 2 time(s). Last edit at 04/21/21 11:47 by AaronJ.

AaronJ Wrote:

> I'm about 99.999% sure they are talking about KC
> to Springfield via Gateway Western, then existing
> track to Joliet, switch to the ex-EJ&E to
> Griffith, then ex-Grand Trunk to Detroit.

CN may be looking at their Gilman sub and Chicago sub for the Springfield to Matteson route.

If CN goes west to KC, it would be interesting to see if BNSF or UP try to go east out of St Louis on CSX's partially mothballed B&O line.

CP has trackage rights Chicago to Detroit, also GTW is Chicago to Detroit for CN..Detroit to Kansas City is CP via Bensenville. CN Detroit to Kansas City is GTW Detroit to Chicago to Springfield and KCS Springfield to KCY.

inCHI Wrote:
-------------------------------------------------------
> Something is either misquoted or confusing in a
> statement from CN quoted in there:"CN EVP & Chief
> Operating Officer Rob Reilly highlighted various
> benefits of this proposed acquisition on the
> Webcast, including:
>
>

• extend CN’s reach by adding a line to Detroit
  > and Kansas City, creating faster, safer, and more
  > economical rail option for shippers who currently
  > rely on trucks
  >
  > How does KCS "add a line to Detroit" for CN? Maybe
  > that is supposed to mean adding a "lane" between
  > Detroit and KC?
  >  

This is probably a minor point, but KCS and CN don't really meet in Springfield today.  KCS trackage ends about a mile west of where CN meets both UP and NS.   I assume there is a trackage rights agreement on NS and even UP that allows KCS to connect to CN?

And I agree with the earlier comment, CN is planning a KCS to Springfield, CN(IC) from Springfield to Matteson via Gilman, CN (EJE) to Griffith, and CN (GT) to Detroit.  No trackage rights needed.

It will be interesting if the CP/KCS deal goes through if the KC - Springfield route gets sold to either CN or UP.

An article on Trains stated that if CP looses this chance to merge they will have to look for another merger partner. What gives?  They act like they are the Rock Island or Milwaukee and will go out of business if they don't merge with another major carrier. 

See comments below...


IC1038west Wrote:
-------------------------------------------------------
> AaronJ Wrote:
>
> > I'm about 99.999% sure they are talking about
> KC
> > to Springfield via Gateway Western, then
> existing
> > track to Joliet, switch to the ex-EJ&E to
> > Griffith, then ex-Grand Trunk to Detroit.
>
> CN may be looking at their Gilman sub and Chicago
> sub for the Springfield to Matteson route.

Concur. I initially put Joliet but meant Matteson for jumping onto the ex-EJ&E.

>
> If CN goes west to KC, it would be interesting to
> see if BNSF or UP try to go east out of St Louis
> on CSX's partially mothballed B&O line.

Hmmm. Haven't really thought of this but since NS and CP already can/do interchange in Kansas City, not sure this would trigger BNSF and UP to request the old B&O east of St. Louis.

No idea as I sense this is more of a "threat" tantrum if they don't get what they want. The problem with this theory is that any subsequent mergers are unlikely to be approved without significant "open access" type of conditions that I suspect other class 1s will stay away from. CP isn't going away and would likely gain significant trackage as a condition of a CN-KCS merger anyway (e.g., KC to New Orleans).

This also is why breaking apart KCS into various joint ownership corridors is distinctly possible as there are way too many connected interests for a single line to take over KCS.

NWrailfan Wrote:
-------------------------------------------------------
> An article on Trains stated that if CP looses this
> chance to merge they will have to look for another
> merger partner. What gives?  They act like they
> are the Rock Island or Milwaukee and will go out
> of business if they don't merge with another major
> carrier. 



Edited 2 time(s). Last edit at 04/21/21 12:03 by AaronJ.

AaronJ Wrote:
-------------------------------------------------------

> This also is why breaking apart KCS into various
> joint ownership corridors is distinctly possible
> as there are way too many connected interests for
> a single line to take over KCS.

This only matters if there is significant overlap, which there isn't.

DevalDragon Wrote:
-------------------------------------------------------
> AaronJ Wrote:
> --------------------------------------------------
> -----
>
> > This also is why breaking apart KCS into
> various
> > joint ownership corridors is distinctly
> possible
> > as there are way too many connected interests
> for
> > a single line to take over KCS.
>
> This only matters if there is significant overlap,
> which there isn't.

Overlap has nothing to do with it!  Vital interests have absolutely all to do with it!
UP, BNSF, NS, CP, CN, all have vital interests in the disposition of KCS.  Perhaps CSX does as well.
While KCS may be the smallest of the US Class 1's, it occupies a strategicand neutral position in the railroad system. 
Simply awarding KCS in its entirity as it presently exists will create an imbalance that basically results in simply re-routing traffic.
Conrail couldn't have been resolved by awarding it to either NS or CSX; the only peaceful solution was to divide and share it.
Given KCS' strategic position, the only peaceful resolution is division and sharing; the alternative is years of uncertainity and litigation.
ALLEN
 

krm152 Wrote:
-------------------------------------------------------
>
>
> Overlap has nothing to do with it!  Vital
> interests have absolutely all to do with it!
> UP, BNSF, NS, CP, CN, all have vital interests in
> the disposition of KCS.  Perhaps CSX does as
> well.
> While KCS may be the smallest of the US Class 1's,
> it occupies a strategicand neutral position in the
> railroad system. 
> Simply awarding KCS in its entirity as it
> presently exists will create an imbalance that
> basically results in simply re-routing traffic.
> Conrail couldn't have been resolved by awarding it
> to either NS or CSX; the only peaceful solution
> was to divide and share it.
> Given KCS' strategic position, the only peaceful
> resolution is division and sharing; the
> alternative is years of uncertainity and
> litigation.
> ALLEN
>  

Concur. It will be sad to see KCS essentially split into multiple chunks equally shared by interested parties. However, the competing bids for KCS in this new era of requiring "increased competition", makes it increasingly likely KCS is headed toward being broken apart.

If CP or CN were to state at the onset that any rail (regional or class 1) connecting to KCS would automatically be granted open access to the entire system's route and customers, the STB would rubber stamp this as approved in days. But since that flat-out isn't happening yet every class 1 has an argument toward at least a portion of the KCS system routes, I simply don't see this ending with KCS merging with just CP or just CN. One of them may retain the name but they won't retain KCS route system control in this country or Mexico. This is where CP, CN, and anybody else thinking of a bid (e.g., NS) will have to weigh the risk of spending 30+ billion on a system that may not return the full investment with other rails grabbing customers/route control.



Edited 1 time(s). Last edit at 04/21/21 14:18 by AaronJ.

I would agree. NS is probably not going to put in a bid, but they are darn sure to make clear that the Speedway agreement is going to remain in place or they get the whole thing and trackage rights to Dallas. Heck, they probably should ask for the Dallas to Shreveport segment. 


AaronJ Wrote:
-------------------------------------------------------
> krm152 Wrote:
> --------------------------------------------------
> -----
> >
> >
> > Overlap has nothing to do with it!  Vital
> > interests have absolutely all to do with it!
> > UP, BNSF, NS, CP, CN, all have vital interests
> in
> > the disposition of KCS.  Perhaps CSX does as
> > well.
> > While KCS may be the smallest of the US Class
> 1's,
> > it occupies a strategicand neutral position in
> the
> > railroad system. 
> > Simply awarding KCS in its entirity as it
> > presently exists will create an imbalance that
> > basically results in simply re-routing traffic.
> > Conrail couldn't have been resolved by awarding
> it
> > to either NS or CSX; the only peaceful solution
> > was to divide and share it.
> > Given KCS' strategic position, the only
> peaceful
> > resolution is division and sharing; the
> > alternative is years of uncertainity and
> > litigation.
> > ALLEN
> >  
>
> Concur. It will be sad to see KCS essentially
> split into multiple chunks equally shared by
> interested parties. However, the competing bids
> for KCS in this new era of requiring "increased
> competition", makes it increasingly likely KCS is
> headed toward being broken apart.
>
> If CP or CN were to state at the onset that any
> rail (regional or class 1) connecting to KCS would
> automatically be granted open access to the entire
> system's route and customers, the STB would rubber
> stamp this as approved in days. But since that
> flat-out isn't happening yet every class 1 has an
> argument toward at least a portion of the KCS
> system routes, I simply don't see this ending with
> KCS merging with just CP or just CN. One of them
> may retain the name but they won't retain KCS
> route system control in this country or Mexico.
> This is where CP, CN, and anybody else thinking of
> a bid (e.g., NS) will have to weigh the risk of
> spending 30+ billion on a system that may not
> return the full investment with other rails
> grabbing customers/route control.

Interesting point about Mexico.  Can Mexican concessions can be affected by a change of control?

boxcar1954 Wrote:
-------------------------------------------------------
> Interesting point about Mexico.  Can Mexican
> concessions can be affected by a change of
> control?

No way of knowing without seeing the actual franchise agreement. Then again your talking about Mexico and corruption is not unknown. If the agreement is solid then you could expect the US Government to lean on the Mexican Government if they tried any funny business. The Mexican economy is dependent on US businesses operating there, so breaking binding legal agreements would spook a lot of US companies, not just railroads.

NWrailfan Wrote:
-------------------------------------------------------
> An article on Trains stated that if CP looses this
> chance to merge they will have to look for another
> merger partner. What gives?  They act like they
> are the Rock Island or Milwaukee and will go out
> of business if they don't merge with another major
> carrier. 

The reason that CP is worried about CN getting KCS is that they know that once all train service contracts through Kansas City with CP end, CN will dry up the formerly friendly interchange there. CN will do this by refusing to quote through rates with CP via Kansas City, they will happily quote rates via Chicago instead. CP will then mainly interchange with UP or BNSF, both of which will also prefer the interchange point to be Chicago. KC will remain an open interchange but only a small amount of traffic will be interchanged there.

One other point that US railfans may not be aware of is that in Canada the government has forced all railway companies to provide Interswitching service for competing companies
for a distance of 30 kilometers from any recognized interchange point. The Canadian Government sets the rates for this service based on the distance. There is nothing like this in the US. So if CN gets KCS and a shipper located on KCS wants to ship a carload to a point on CP located close to a interchange in Canada, CN will be able to quote a through rate, while CP will have a portion quoted at a local rate from wherever CN will accept interchange.

At this point the best thing to happen would be if the STB either rejected both offers or put such onerous conditions so as to dissuade the potential buyer.