Greetings;
And happy “The Canadian Border is Finally Open” Day!
First, the tweets:
#1 - As we figured, CP noted ISS’s clue (provide an “actionable alternative” bid) & raised its bid for KSU from ~$25B to $27B, narrowing the gap to CN’s ~$30B bid that may -MAY-have political/time risk pending STB VT verdict (SOON?) Enough? The ball’s (always) in STB court
#2 - KSU saga gets a new twist or 2 – CP formerly files raised bid – enuff for KSU shareholders in their vote 8/19? Well, the key is the STB VT decision – and now STB says the decision, expected last month, will be “no later than 8/3”! View that as a 1-finger salute to the Street.
Now, the (daily?) update on the KSU saga which in reality isn’t that old but already feels like the Odyssey (so maybe CP CEO isn’t Achilles but Ulysses?):
- As expected CP formally upped their bid (see attached and Tweet 1). In this early morning’s surprise webcast (what is it about this deal and early/weekend timing?!?!) Creel and CP stated:
- CP now has provided an actionable alternative, albeit at a lower face price ($300 to $325/ps, cutting the gap in half)
- When asked about that “meaningful gap”, Creel essentially said “what gap – if their (deal) is not achievable?” – essentially the summary of the CP position and the lynchpin of their “political strategy” since CN’s entry into the mix
- After getting one question that suggested CP didn’t offer enough (relative to CN), CP got one question related to perhaps paying (offering) too much (new to me, anyway) with the suggestion that (some) CP shareholders were concerned (and maybe wanted a return to a focus on CP as is, with the bright future that Creel expressed in the Q2/21 webcast)
- KSU acknowledged receiving the new proposal; one question is how will the hefty ($1B) breakup fees come into play, really a question for the arbs, not the (railway) analysts (KC: “I am not focused on that”)
- Creel noted he wasn’t “getting into a bidding war” (ironically after walking back the implied $275 “final offer”)
- CP increased their anticipated synergies in their proposal from $600mm to $820mm, mostly out of grain and IM potential from highway and waterways – we always said that they (and CN, for that matter) had “synergies” to find (as they got more info, etc)
- CP feels that with only a change via the price increase and their (stated) conservative approach to leverage, that they won't have to refile their own, accepted and Old-Rule Voting Trust application (there might be a dispute about that, another question out of railway analyst expertise – if they have to re-file under the new rules that will be a big blow indeed….)
- So it still comes back to the STB, the decision and the wording – and here another bomb was dropped (see Tweet #2): “The Board has also received many inquiries from industry stakeholders, the public, and the media as to the timing of a Board decision on the pending voting trust motion, particularly in light of the anticipated vote of the KCS shareholders on the proposed merger, which is currently scheduled for August 19, 2021. In response to these inquiries (we don’t care about Wall Street and the investors) and to provide as much information as is possible with respect to the timing of a decision, the Board is issuing this statement today to announce that the Board expects to issue a decision on the proposed voting trust no later than August 31, 2021.” (Sarcastic emphasis mine, of course)
- The STB is busy – in addition to (finally) accepting the CSX application to buy the Pan Am railroad, they entered the dispute between Amtrak, they of the $66B in new monies coming (the Senate passed the Infrastructure bill, now to passage in the House, in case you missed on a rather busy day) and Norfolk Southern – and CSX. CSX and the STB are like two gunfighters in a western movie, where an hour is spent on “back-story” before the showdown on the dusty streets of Washington, DC. And there’s also the CN (again) – Watco sale of the WC lines still – and that’s before the EO-enhanced hearings etc to be called on the broad topic of fairness….
- Irony! Four big shipper trade associations (National Freight Car, Natl Grain & Feed, Natl Oilseed Processor, and the Chlorine Institute) have banded together to petition that private car owners (some ¾ of the NA fleet) be allowed to assess demurrage on the railroads!
- Stay in Your Lane, dept: From Seeking Alpha: The consensus view is that the Surface Transportation Board will reject the voting trust, according to XXX analyst XXXX (according to SA); which is similar to a survey conducted by Seeking Alpha earlier this month. The abh view – the consensus view? What does that matter? It’s MARTY’s view (et al) that matters! Yes, some of that consensus is KSU shareholders, so it would matter if he were discussing the KSU, not the STB, vote.
- Succession Issues in general & specific: The same report speculated (fairly?) on CSX management changes that might occur if regulatory results go against them. Succession issues are rampant at either 5 or 6 of the 7 Class One carriers (I am exempting BNSF and, maybe CP – or maybe not).
Travel still planned: In my last piece I highlighted the NARS agenda; here is the NEARS (North East) schedule: PowerPoint Presentation (nears.org) and here is NARS’ updated: NARS-2021-Annual-Meeting-agenda-2.pdf (railshippers.com) (pretty potent – 5/7 Class One CEOs, the (ubiquitous) STB Chair, the President of the GWR, the CEO of Chevron, and me, twice (I am hosting the KSU/CNI “fireside chat”). NS and CP aren’t on the agenda as of now. Should we worry about the appearance of isolating CP’s CEO Achilles (AKA Keith Creel)? NARS is a month away, so lots could happen – in any direction, and in any event, it is always useful to hear from KC, whether it’s about KC(S) or not….Word is that CP will be represented at NARS in some high-level form, so that’s (all) good!
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Anthony B. Hatch
abh consulting
http://www.abhatchconsulting.com
[email protected]
Twitter @ABHatch18