‘Hurdles are very high’ for CP Rail merger plans
CEO is reportedly eyeing U.S. carrier Norfolk Southern, but deal won’t come easily
Canadian Pacific Railway’s quest for a record merger depends on a blessing from the same U.S. agency that thwarted the last effort to build a transcontinental railroad.
Chief executive officer Hunter Harrison’s target, people familiar with the matter said, is Norfolk Southern Corp., the No. 2 carrier in the eastern United States.
Both companies rallied Monday on news of Canadian Pacific’s interest, as investors savoured the possible efficiencies in a coast-to-coast operation.
Getting to that point won’t be easy. First, Canadian Pacific would have to secure Norfolk Southern’s consent.
Then Harrison would have to win clearance from the U.S. Surface Transportation Board (STB), which balked at a major cross-border tieup in 2000 and has long been seen as opposed to more consolidation in an already shrunken North American industry.
“The hurdles are very high,” said Mark Levin, an analyst with BB&T Capital Markets. “I don’t think you can accomplish a hostile merger in this environment.”
Congress’s railroad deregulation in 1980 unleashed two decades of deals that cut the ranks of U.S. carriers to four large ones from about 20, alongside Canadian Pacific and Canadian National Railway Co. The tipping point came when BNSF Railway Co.’s former parent tried to combine with Canadian National: the STB imposed a 15-month merger moratorium, followed by an additional review, and the companies dropped the idea.
Shippers complaining about rising rates spurred the STB to act — and since then, railroads have been reluctant to press for a final, blockbuster-consolidation push of the kind now being considered by CP Rail.
“There is always a segment of the customers that want to reregulate the industry,” said Tony Hatch, who tracked many of the 1990s mergers as a Wall Street analyst and now runs ABH Consulting. “This would open that up.”
The Surface Transportation Board had no comment Monday on the prospects of a Canadian Pacific-Norfolk Southern combination, spokesman Dennis Watson said, and nor did Calgary-based Canadian Pacific.