Greetings;
OK, by now you know….Canadian National enters the KSU story – issuing a 20% premium bid and disrupting CP’s best-laid plans….this was a surprise to me, and to (I am fairly certain) KSU and CP (though there were clues in the volume levels of KSU shares).
My Tweets:
- Whoa, another shock from the north! Assuming promised resolution of route overlap (CN’s IC and the KCS in the Gulf/LA), this ALSO could pass STB muster….and NOT trigger “any final round consolidation” by involving the US “Big Four”. CN’s case and economics seem cogent, so, although this deal is more complex, the market (and not the regulators) will decide who gets the prize….(Note – the “unsolicited” bid was a lot higher….)
- (after more consideration) - More thoughts on CNI+KSU – a deal that leaves CP – & star CEO Creel – unattached is a big DE-STABILIZER in the RR industry; CN’s earlier stand against KCS exemption also, means that the STB would view this proposed combination under the new rules, which, assuming STB acceptance, removes ambiguity and adds risk (per Dorgan letter) and I have hardly changed my position that any Big 4 merger would be problematic – at best.
Other thoughts (and of course there’s more to come, hopefully at a decent hour):
- Perhaps I shouldn’t have been so surprised – we didn’t name CN’s CEO JJ Ruest the RailTrends 2021 “Innovator of the Year” for nothing….
- This is obviously more complex, as noted – and where it is complex brings in the (petro) chemical industry, well-heeled, politically astute, and usually spoiling for a fight with rails.
- CN hadn’t talked with shippers (yet), it seems, as part of the shock-and-awe strategy.
- As KSU considers, will they insist on a large breakup fee?
- How will CN’s earlier stance on the (CP) merger impact this proposal?
- What will CP do? They have room, it seems, to up the ante.
- Just how bad would CP+KSU be for CNI standalone? I continue to believe that CP’s proposed N/S intermodal growth is a “show-me” concept (CN+KSU seems more justified for IM), but the CBR/refined products and grain stories might rank as problems for CN share/opportunity. In any event, it isn’t like Conrail (and CSX) was – an existential threat, to use 21st C parlance - to Norfolk Southern way back in the last century.
- Both deals would pass the STB approval process, the CN with more conditions – the assertion that CN’s is less problematic is wrong, however.
- I hear a lot of ESG talk in these proposals, but I would be a cynic to suggest that’s lobbying, right?
- CN’s J-line around Chicago is a plus for this; their unexpected fight (that may be way too strong a word for it – but Boy Howdy! Have I ever gotten some nasty push-back on my comments here) over their planned line sales in Wisconsin to Watco may prove an irritant in their STB relations….
- Who owns KSU shares – folks who want the upside of the newco – or folks who want $1 more?
- Several inbound conversations have wondered – is this just an attempt by CN to break up the merger plans of its rival? Or to get them to raise their price and thus narrow their potential gains? I haven’t/don't think like that (more of a “Band of Brothers” fan than “Game of Thrones”) but if so, it could be a win/win….
Anthony B. Hatch
abh consulting
http://www.abhatchconsulting.com
[email protected]
Twitter @ABHatch18