Canadian Pacific talks merger with CSX
The Canadian Pacific Railway recently approached CSX, the big Florida-based rail line, about a merger that would create a company worth more than $60 billion, people briefed on the matter have said.
While the two companies have begun to discuss the possibility of a transaction, CSX was cool to the idea, and it is too early to tell whether they will pursue one, these people said Sunday.
If completed, a deal would unite two of the biggest railroad operators at a time when rail traffic in North America is soaring because of the energy boom, snarling Amtrak traffic and tying up other freight.
It could also provide a big victory for the activist investor William Ackman, who joined Canadian Pacific’s board after a contentious proxy fight and whose hedge fund, Pershing Square Capital Management, has a big stake in the company.
Canadian Pacific, with a market value of about $32.5 billion, has rail lines that stretch across Canada and into the United States. CSX has a market value of about $30 billion and controls a network of lines throughout the Eastern United States.
With minimal geographic overlap, the two companies would have a huge combined footprint. But there are potential obstacles to a deal.
CSX shareholders would most likely expect a significant premium for their shares. And consolidation is difficult in the railroad industry, with the U.S. Surface Transportation Board, which oversees the industry, looking warily on combinations.
Nonetheless, Canadian Pacific appears emboldened after its shares have risen 25 percent this year.
Canadian Pacific has undergone a turnaround over the last two years under the leadership of E. Hunter Harrison, a longtime rail industry executive who was brought in by Ackman. Under his tenure, the railroad has focused on trimming costs and improving efficiency. During the same period, Canadian Pacific has taken market share from its rival Canadian National and has begun to compete with the trucking industry in the market for delivering goods.
Much of the North American railroad network has been weighed down by mismanagement, and part of the logic behind uniting Canadian Pacific with CSX is that a combined company would help relieve congestion by streamlining certain crucial routes, people briefed on the deal say. Because Canadian Pacific mainly runs routes in Canada, there is little overlap with routes run by CSX or other American railroads, making it less of a concern from a regulatory perspective, a person briefed on the discussions said.