Although NS has publicly denounced Canadian Pacific’s $24.8 Billion dollar offer to buy the company as being far too “low premium”, only time will tell if Mr. Harrison’s dream of creating a true transcontinental railroad will come to fruition. The details of the offer can be found on CP’s website (insert link). Of course, NS stock has jumped 15% since the rumors of an offer from CP started to circulate, so the characterization of the offer as too low may be a little unfair. Clearly the possibility has raised hope in the marketplace. CP boasts a 59.9% operating ratio, while NS reported a 69.7% operating ratio for the third quarter of 2015. Even if NS management is less than interested in the offer, NS shareholders are hoping that Mr. Harrison will bring his cost cutting measures to that property and boost the company’s financial performance.
Any such merger will require STB approval and that will be no easy task, given the more stringent merger review requirements that the agency put in place following the aborted merger of Canadian National and BNSF. To pass muster, any applicant seeking merger approval must not only show that the deal will not hurt competition, but must also show that it will enhance competition. To sweeten the pot, CP has offered to allow for Canadian style reciprocal switching rights, so that any shipper who felt that the new combined railroad was not providing adequate service at competitive rates could seek alternative service with another rail carrier. Shippers have been asking for these rights from the STB for years, and a petition for a rulemaking proceeding has been pending at the agency seeking these rights since 2011. If this deal moves forward, it could create enormous benefits for shippers, since all of the other carriers will be under significant pressure to offer similar rights to their customers, and it may give the STB the political will to finally rule on EP711.
For more details on the offer letter, please click here.