Home Open Account Help 135 users online

Canadian Railroads > Q: did tax strategy motivate CN & CP to buy 2 marginal US lines?


Date: 11/23/19 03:26
Q: did tax strategy motivate CN & CP to buy 2 marginal US lines?
Author: JPB

It's not obvious to me why CN and CP each spent > $100M to buy two marginal secondary lines (that the two current owners, CSX and Fortress, want to unload), largely in the US, that appear to have limited revenue growth opportunity for the new owners. Is there some sort of tax avoidance strategy in play? Or perhaps in both case, it was a defensive acquisition (eg, CN saying they didn't want a shortline in the middle of its upstate NY CSX interchange)? Alternatively why not use the $ to buy back shares pleasing the RRs' stock holders? Is this some sort of hedge against the 2020 US elections?

Having asked the above, per Trains Magazine on-line, CP Chief Marketing Officer John Brooks told the RailTrends 2019 conference on Friday that
"Canadian Pacific will upgrade Central Maine & Quebec trackage so that the route linking Montreal and Atlantic ports can handle premium intermodal and automotive traffic [upgrading from CMQ's current MAS from 25mph]..."
and "...Rival Canadian National has a major presence in Atlantic Canada, including service to Saint John, as well as Halifax, Nova Scotia. Buying the CM&Q will enable CP to better compete, Brooks says..." and specifically "...Acquiring the CM&Q also may permit CP to better compete for potash traffic that CN currently handles to the port of Saint John for export to Brazil..."

http://trn.trains.com/news/news-wire/2019/11/22-canadian-pacific-plans-to-upgrade-cmq-trackage-to-handle-premium-traffic

Makes one wonder if CP would like to get Quebec Gatineau lines back in the fold...



Edited 1 time(s). Last edit at 11/23/19 03:52 by JPB.



Date: 11/23/19 08:08
Re: Q: did tax strategy motivate CN & CP to buy 2 marginal US lin
Author: Dick

Could the reason for CP buying the CM&Q be that CN was interested in it.  In the past this has been a motivator for CP.
Dick Eisfeller



Date: 11/23/19 08:52
Re: Q: did tax strategy motivate CN & CP to buy 2 marginal US lin
Author: TCnR

The linked info certainly nails down the conjecture. Where are the Potash sources on the Eastern side?

Or maybe it's the same Potash that exports from the West Coast, Brazil is on the Atlantic so would reduce the ship travel time and also free up the CP routes to the Pacific. How's that for big picture thinking?



Date: 11/23/19 09:56
Re: Q: did tax strategy motivate CN & CP to buy 2 marginal US lin
Author: JPB

I don’t really buy CP’s argument that railing potash from W Canada to Searsport or Saint John is a significant incremental benefit to CP of buying the CMQ. My understanding is that CMQ was desperate to increase carloads so I suspect that CP could have orchestrated a deal where CP got good revenue for the W Coast to Montreal long haul with CMQ either terminating traffic at Searsport or bridging it to NBS to get to Saint John (as CP will have to do).

Posted from iPhone



Edited 1 time(s). Last edit at 11/23/19 09:56 by JPB.



Date: 11/23/19 11:25
Re: Q: did tax strategy motivate CN & CP to buy 2 marginal US lin
Author: cn6218

I can't speculate on CP's reasons for buying the line back, but I do know a little about the potash.

There are no sources of potash any longer in the East.  There were two mines in near Sussex, NB, (and another in Clover Hill) but all are shut down now.  They may still do some processing there however.  There is still a large potash shipping terminal on the east side of Saint John.  That's where the CN trains go (loaded with western potash now), and even though CN handed over Island Yard to NBSR to operate, they hung onto the potash spur, so I'm not sure it would be easy for CP/NBSR to get access on the east side.  If they want to haul containers, that's all on the west side, and doesn't need to involve CN.  They just have to deal with a 20 foot tide twice a day!

Somebody in another thread asked about double-stack clearances.  I know the old CP main line is good all the way from from Saint John to Montreal for double-stacks.  Occasionally, there will be a 5-pack on the rear of NBSR 907.  I'm not so sure about Searsport, although except for some through truss bridges, there's nothing obvious that I can think of that might be a problem.

GTD



Date: 11/23/19 13:05
Re: Q: did tax strategy motivate CN & CP to buy 2 marginal US lin
Author: Lackawanna484

How does ship time from Europe or the Persian Gulf compare btw Searsport and Saint John and Halifax?

Posted from Android



Date: 11/23/19 14:36
Re: Q: did tax strategy motivate CN & CP to buy 2 marginal US lin
Author: robj

Different management, different philosophy plus both are doing well enough, no shortage of cash..  There could well be tax benefits for investments, would be interesting to know what kicks in but best guess there is some tax advantage which can tip the scales.  Buying back spun of lines is not uncommon.

Bob



Date: 11/24/19 02:58
Re: Q: did tax strategy motivate CN & CP to buy 2 marginal US lin
Author: BoostedFridge

If Searsport and intermodal are being discussed, then it is a long term play for CP.  The Mack Point terminal there has no capability currently for handling containers.  Furthermore its layout and dock arrangement would require major construction to be able to handle even moderate sized container ships..  Some searching revealed somewhat recent efforts for developing a new terminal on nearby Sears Island, but these have gone nowhere due to resistance from environmental concerns.



Date: 11/24/19 04:56
Re: Q: did tax strategy motivate CN & CP to buy 2 marginal US lin
Author: ghCBNS

Lackawanna484 Wrote:
-------------------------------------------------------
> How does ship time from Europe or the Persian Gulf
> compare btw Searsport and Saint John and Halifax?
>

Using the container port at Antwerp Belgium for example, the nautical miles are:

Halifax: 3163
Saint John: 3453
Searsport: 3499

http://ports.com/sea-route/port-of-antwerp,belgium/port-of-halifax,canada/

The rail journey time from Halifax to say Montreal would be longer than from Searsport....so total travel time would probably be a wash.



Edited 1 time(s). Last edit at 11/24/19 05:12 by ghCBNS.



Date: 11/24/19 06:36
Re: Q: did tax strategy motivate CN & CP to buy 2 marginal US lin
Author: Lackawanna484

Thanks for the details

Posted from Android



Date: 11/26/19 08:19
Re: Q: did tax strategy motivate CN & CP to buy 2 marginal US lin
Author: 4489

JPB Wrote:
-------------------------------------------------------
> It's not obvious to me why CN and CP each spent >
> $100M to buy two marginal secondary lines (that
> the two current owners, CSX and Fortress, want to
> unload), largely in the US, that appear to have
> limited revenue growth opportunity for the new
> owners. Is there some sort of tax avoidance
> strategy in play? Or perhaps in both case, it was
> a defensive acquisition (eg, CN saying they didn't
> want a shortline in the middle of its upstate NY
> CSX interchange)? Alternatively why not use the $
> to buy back shares pleasing the RRs' stock
> holders? Is this some sort of hedge against the
> 2020 US elections?
>
> Having asked the above, per Trains Magazine
> on-line, CP Chief Marketing Officer John Brooks
> told the RailTrends 2019 conference on Friday
> that
> "Canadian Pacific will upgrade Central Maine &
> Quebec trackage so that the route linking Montreal
> and Atlantic ports can handle premium intermodal
> and automotive traffic ..."
> and "...Rival Canadian National has a major
> presence in Atlantic Canada, including service to
> Saint John, as well as Halifax, Nova Scotia.
> Buying the CM&Q will enable CP to better compete,
> Brooks says..." and specifically "...Acquiring the
> CM&Q also may permit CP to better compete for
> potash traffic that CN currently handles to the
> port of Saint John for export to Brazil..."
>
> http://trn.trains.com/news/news-wire/2019/11/22-ca
> nadian-pacific-plans-to-upgrade-cmq-trackage-to-ha
> ndle-premium-traffic
>
> Makes one wonder if CP would like to get Quebec
> Gatineau lines back in the fold...

Hindsight is always 20/20



[ Share Thread on Facebook ] [ Search ] [ Start a New Thread ] [ Back to Thread List ] [ <Newer ] [ Older> ] 
Page created in 0.086 seconds