Eyes on BNSF for Merger's

Western Railroad Discussion > Eyes on BNSF for Merger's.

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Date: 11/18/05 15:56
Eyes on BNSF for Merger's.
Author: Nbetween

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Press reports suggest BNSF Railway, awash in cash, may be considering new merger opportunities that would give it significantly increased market power and a truly North American presence in Mexico, the U.S. and Canada.
An international rail consultant was quoted Nov. 16 by the Canadian Press saying that BNSF may again attempt a merger with Canadian National Railway, which also controls the former Illinois Central, Grand Trunk Western and regional railroad Wisconsin Central.

An article in a transportation law publication in November speculates BNSF may make a grab for Kansas City Southern, which also controls the Tex-Mex and Mexico's TFM railroad.

Rail mergers have been devastating to rail employment. As the number of Class I railroads declined from 39 in 1980 to 7 today (due mostly to consolidations), the number of Class I railroad employees has declined from 458,000 in 1980 to under 155,000 today.

Those who follow mergers have their eyes on BNSF.

Wall Street analysts report that BNSF will have some $2 billion in so-called "free cash" to spend over the next 26 months. That cash could be spent increasing the dividend paid investors, buying back its own stock (which reduces shares available and lifts the stock price), or on acquisitions.

BNSF is North America's second-largest railroad (to Union Pacific), operating some 32,000 miles of railroad and collecting some $10 billion annually in freight revenue. (UP operates slightly more mileage than BNSF, but earns some $12 billion in freight revenue annually. A BNSF combination with KCS or CN could propel BNSF ahead of UP.)

According to international railroad consultant Charles Banks, CEO of R.L. Banks and Associates of Washington, D.C., the most logical partner for CN would be BNSF. (In 2000, BNSF and CN voluntarily canceled merger plans after U.S. regulators imposed a 15-month freeze on railroad consolidations while new rules were written.)

Meanwhile, a publication of the Association of Transportation Law Professionals (the bar association of the U.S. Surface Transportation Board), carried an article suggesting BNSF may have interest in acquiring KCS.

Some analysts think a BNSF/KCS combination is much more likely than a renewal of the BNSF/CN consolidation.

The reason could be KCS' Meridian Speedway, KCS' control of the Tex-Mex, and KCS' subsidiary TFM, a major Mexican railroad running from Laredo, Texas, to Mexico City and serving key Mexican ports at Monterey (east coast of Mexico) and Lazaro Cardenas (west coast of Mexico).

The KCS Meridian Speedway -- linking Meridian, Miss., with Dallas -- is the fastest growing and least congested rail route in America.

KCS' Tex-Mex subsidiary links Houston to the busiest U.S.-Mexico border crossing at Laredo.

BNSF is said to be especially interested in rail access -- through KCS and TFM -- to the Mexican port of Lazaro Cardenas, on the southwest coast of Mexico.

TFM controls all tracks into and out of the Port of Lazaro Cardenas, and is spending $12 million to improve its rail-monopoly access.

The Port of Lazaro Cardenas is 600 rail miles closer to Houston than the severely congested mega-ports of Long Beach/Los Angeles; Lazaro Cardenas is only 200 miles further from Chicago than Long Beach/Los Angeles; and the Port of Lazaro Cardenas is the closest to Mexico City, whose population is some 22 million.

Labor costs are said to be 30 percent cheaper at the Port of Lazaro Cardenas than U.S. ports, which has attracted the interest of retail giants such as Wal-Mart. It is reported that Wal-Mart is working with ocean carrier Maersk to invest in additional port capacity at Lazaro Cardenas, and terminal operator Hutchison Wampoa already is in the process of increasing the port's capacity 10-fold.

Meanwhile, the Wall Street firm of UBS projects TFM rail-freight revenue associated with port traffic will grow from $29 million to as much as $225 million by 2025 because of Lazaro Cardenas port expansion and increased Asian imports.

UBS projects the Port of Lazaro Cardenas will be handling some two million containers by 2025, which compares to nine million now at Long Beach/Los Angeles and under two million now at the ports of Oakland, Calif., and Seattle.

All mergers involving U.S. railroads must be approved by the U.S. Surface Transportation Board, which, with very few exceptions, has approved most rail mergers presented to it, notwithstanding substantial opposition by shippers and rail labor.

For example, over the past two decades, Union Pacific gained approval to acquire the former Western Pacific, the Missouri Pacific, the Chicago & North Western, and the Southern Pacific.

BNSF, meanwhile, is the combination of the former Burlington Northern and the Atchison, Topeka & Santa Fe.

Among the very few rail mergers rejected by the U.S. Surface Transportation Board was the 1984 proposed merger of the Santa Fe with the Southern Pacific. And, as mentioned, BNSF and Canadian National voluntarily canceled their merger attempt in 2000. 

Canadian Pacific Railway Ltd., the second-biggest railroad in Canada, is exploring a takeover of U.S. carrier Norfolk Southern Corp. in a fresh attempt to consolidate the North American industry, according to people familiar with the matter. The shares surged on the news.

Canadian Pacific is raising financing and has held early-stage merger talks with Norfolk Southern, which is valued at about $24 billion, said two of the people, who asked not to be identified because deliberations are private. Discussions are preliminary and talks may not progress or lead to a deal, they said. Representatives for Canadian Pacific and Norfolk declined to comment.

A move for Norfolk Southern, the second-biggest railroad in the eastern U.S., would revive Canadian Pacific’s effort to build a transcontinental carrier after talks with CSX Corp. failed last year. In floating the idea of a CSX tie-up, Canadian Pacific Chief Executive Officer Hunter Harrison upended the long-held view in the industry that it was fruitless to even discuss another merger because regulators would object.

“We would view a potential transaction positively,” Desjardins Capital Markets analyst Benoit Poirier said in a note to clients. The challenge, he said, would be winning regulators’ blessing, which makes it “unlikely that a transaction can be completed in the short term.”

Industry Consolidation

Dealmaking since U.S. railroad deregulation in 1980 has shrunk the number of major U.S. carriers to four alongside Canadian Pacific and Canadian National Railway Co. But Harrison, 71, is a veteran of past rail mergers, and has led an operational turnaround at Canadian Pacific since being lured out retirement in 2012 by activist investor Bill Ackman, whose Pershing Square Capital Management is the biggest shareholder. The railroad’s market value was about C$27 billion ($20 billion) as of Friday.

Harrison previously ran Canadian National, where he spearheaded the 2007 agreement to buy Elgin, Joliet & Eastern Railway Co. He was CEO of Illinois Central Corp. when Canadian National agreed to buy that carrier in 1998 in an acquisition valued at about $3 billion.

Norfolk Southern jumped 11 percent, the most since 2008, to $88.62 at the close in New York, while Canadian Pacific’s 5.7 percent rally to C$188.79 in Toronto marked the shares’ biggest gain since 2013.

Trading Statement

“There is no material news pending at this time,” Canadian Pacific said in a statement, citing a request from the Investment Industry Regulatory Organization of Canada that it respond to the day’s stock trading. “CP does not comment on market rumor and speculation.”

North American railroads have focused on smaller acquisitions in recent years after BNSF Railway Co.’s effort to buy Canadian National fell apart in 2000 amid opposition from the U.S. Surface Transportation Board.

The last previous major deal involving major U.S. or Canadian carriers was the breakup of Conrail Inc., announced in 1996, with CSX Corp. paying $4.3 billion for some of those assets and Norfolk Southern getting others for $5.9 billion, according to data compiled by Bloomberg.

Norfolk Southern operates about 20,000 route miles (32,000 kilometers) of track snaking through 22 eastern states, and serves each of the region’s major container ports. Its connections with western railroads include Chicago and Kansas City, Missouri -- two cities served by Canadian Pacific.

Canadian Pacific’s network spans southern Canada from Montreal to Vancouver, and turns south to cut across the U.S. grain belt in the Dakotas, Minnesota and Wisconsin before connecting to the rail hub of Chicago.

The railroads’ cargo markets are complementary. Intermodal shipments -- goods in containers that can be hauled by ship, rail and truck -- made up 22 percent of Norfolk Southern’s $11.6 billion of 2014 revenue, followed by coal with 21 percent. Autos and auto parts contributed about 9 percent.

Canadian Pacific’s biggest shipping category by revenue was industrial and consumer products, at 28 percent of last year’s C$6.62 billion of revenue.

The stocks of both companies had been falling this year amid declining shipping volumes, due in part to drops in cargo such as coal and oil. Canadian Pacific fell 20 percent this year through Friday. Norfolk, Virginia-based Norfolk Southern declined 27 percent in that span.

Norfolk Southern Railway

From Wikipedia, the free encyclopedia

NS system map; trackage rights in purple
Reporting mark	NS
Locale	Eastern United States
Dates of operation	1894–Present (founded as theSouthern Railway)
Predecessor	Norfolk and Western Railway (last railroad absorbed into the system, completed in 1997) Absorbed half of Conrail in 1999
Track gauge	4 ft 8 1⁄2 in (1,435 mm) standard gauge
Length	21,500 miles (34,600 kilometres)
Headquarters	Norfolk, Virginia
Website	nscorp.com

The Norfolk Southern Railway (reporting mark NS), (also known as Norfolk Southern Railway Company or simplyNorfolk Southern) is a Class I railroad in the United States, owned by the Norfolk Southern Corporation. With headquarters in Norfolk, Virginia, the company operates over 22,000 route miles in 22 eastern states, the District of Columbia,^[1] and has rights in Canada from Buffalo to Toronto and over the Albany to Montreal route.^{[2][dubious – discuss][3]} The most common commodity hauled on the railroad is coal from mines in Indiana, Kentucky, Pennsylvania, Tennessee, Virginia, and West Virginia. The railroad also offers the most extensive intermodal network in eastern North America.

The Norfolk Southern Railway was founded in 1894 as the Southern Railway, making it the fourth oldest Class I railroad inNorth America (just behind Union Pacific Railroad, Canadian Pacific Railway and Kansas City Southern Railway). The railroad was renamed from "Southern Railway" to its current name "Norfolk Southern Railway" on December 31, 1990 to reflect its parent company, making the railroad the third business entity to use the "Norfolk Southern" name. Its holding company was the second business entity to use the "Norfolk Southern" name starting in 1982 and the holding company was named in honor of the original Norfolk Southern Railway that existed from 1942 to 1982.^{[citation needed]}

Eight years before the renaming in 1982, the railroad and its rival the Norfolk and Western Railway joined together and created Norfolk Southern Corporation holding company and then both railroads were placed under control of their new holding company.

The railroad gained full control of the Norfolk and Western Railway in 1990 with the Norfolk and Western being transferred from the holding company to the renamed Norfolk Southern Railway. In 1997, the Norfolk Southern Railway absorbed the Norfolk and Western Railway, ending the existence of the Norfolk and Western Railway.

In 1999, the railroad grew substantially with the acquisition of over half of Conrail, acquiring 58% of Conrail. CSX Corporation'sCSX Transportation acquired the remaining 42% of Conrail. Together Norfolk Southern Railway and the CSX Transportation have a duopoly over all east-west freight rail traffic east of the Mississippi River.

After close of markets on November 17, 2015, Canadian Pacific Railway announced an offer to purchase all outstanding shares of Norfolk Southern Railway, at a price in excess of the US$26 Billion capitalization of the US based railway.^[4] If completed, this merger of the second and fourth oldest Class I railroads in North America would form the largest single railway company on that continent, reaching from the Pacific coast to the Atlantic coast to the Gulf Coast.^[4]

History

Its time as the Southern Railway (1894–1990)

Main article: Southern Railway (U.S.)

the railroad's previous logo as the Southern Railway

Southern's 4501 on display at the Tennessee Valley Railroad Museum.

Southern Railway 4610 working train GD01 in Dalton, Georgia, on January 19, 2006.

Norfolk Southern Railway was established in 1894 as the Southern Railway, making it the fourth oldest Class I railroad in North America after Union Pacific Railroad, Canadian Pacific Railway and Kansas City Southern Railway.

Before its establishment as the Southern Railway, the railroad has predecessor railroads in its heritage dating back to the early 19th century. The railroad's earliest predecessor line was the South Carolina Canal & Rail Road. Chartered in December 1827, the South Carolina Canal & Rail Road Company became the first in the nation to offer regularly scheduled passenger train service with the inaugural run of the Best Friend of Charleston on December 25, 1830.^[5]

Another early predecessor to the railroad was the Richmond & Danville Railroad (R&D), was formed in 1847 and expanded into a large system after the American Civil War under Algernon S. Buford. The R&D ultimately fell on hard times and in 1894, it became a major portion of the then new Southern Railway (SOU). Financier J. P. Morgan selected veteran railroader Samuel Spencer as president. Profitable and innovative, Southern Railway became in 1953 the first major U.S. railroad to completely switch to diesel-electric locomotives from steam.

As the Southern Railway, the railroad purchased or absorbed various railroads over its 96-year period: Alabama Great Southern Railroad(AGS), Atlantic & Eastern Carolina Railway (A&EC), Central of Georgia Railway (CG), Cincinnati, New Orleans and Texas Pacific Railway(CNO&TP), Georgia and Florida Railroad (G&F), Georgia Northern Railway (GANO), Georgia Southern and Florida Railway (GS&F),Knoxville and Charleston Railroad, Louisiana Southern Railway (LS), New Orleans and North Eastern Railway (NO&NE), New Orleans Terminal Company (NOTCO), Tennessee, Alabama and Georgia Railway (TA&G), Carolina and Northwestern Railway (C&NW).

In 1982, the railroad teamed up with its competitor Norfolk and Western Railway with a merger. The Norfolk and Western dates back to the 19th century and absorbed various railroads in the second half of the 20th century such the Virginian Railway, the Wabash Railway, and theNew York, Chicago and St. Louis Railroad (also known as the Nickel Plate Road).^[6] The merger aimed to compete in the eastern United States with the CSX Corporation (it's railroad network later transformed into the CSX Transportation) which was formed after the Interstate Commerce Commission's 1980 approval of the merger of the Chessie System and the Seaboard System.

The resulting merger consisted of both the Southern Railway and the Norfolk and Western Railway merging its business operations together to form a new railroad holding company called the Norfolk Southern Corporation. The "Norfolk Southern" name came from an earlier railroad called the Norfolk Southern Railway. The new holding company now becomes the second business entity to the "Norfolk Southern" name; the "Norfolk Southern" name would later on be used more frequently by the newly renamed Norfolk Southern Railway (formerly the Southern Railway). After the merger, both the Southern and the Norfolk and Western continued as separate railroads but now under one holding company. The created holding company placed its headquarters in Norfolk, Virginia

The company suffered a slight embarrassment when the marble headpiece at the building's entrance was unveiled, which read "Norfork Southern Railway". A new headpiece replaced the erroneous one several weeks later.^[7]

Continuing as the Norfolk Southern Railway (1990-Present)

NS 21M rolls through Easton, Pennsylvania on the Lehigh Line in 2006

Helpers on the rear of an intermodal train entering the Gallitzin Tunnel

Northbound Norfolk Southern autorack train on the Lurgan Branch

On December 31, 1990, the railroad, now owned and operated by the new Norfolk Southern Corporation, renamed itself from "Southern Railway" to "Norfolk Southern Railway" to reflect its parent company.

In the same year the railroad changed its name (1990), the renamed Norfolk Southern Railway (formerly Southern Railway) gained full control of the Norfolk and Western Railway with the Norfolk and Western being transferred from the holding company to the renamed Norfolk Southern Railway. This began Norfolk and Western's last seven years of operation.

In 1996, Norfolk Southern entered into a duopoly with the CSX Corporation to takeover the formerly government-owned Conrail. Consolidated Rail Corporation (Conrail) was a 11,000-mile (18,000 km) system formed in 1976 and replaced the Penn Central Railroad (1968–1976),^[6] which itself was created with the merging three venerable railroad rivals, the Pennsylvania Railroad theNew York Central Railroad and the New York, New Haven and Hartford Railroad, as well as some smaller competitors. Conrail replacing Penn Central was perhaps the most controversial conglomerate in corporate history. Conrail became profitable after the Staggers Act in 1980 largely deregulated the U.S. railroad industry.

The CSX Corporation bid to buy Conrail and have it be absorbed its railroad CSX Transportation. Norfolk Southern Railway's parent, the Norfolk Southern Corporation has been attempting to purchase Conrail ever since the holding company was created which was back in 1982. Fearing that CSX would come to dominate rail traffic in the eastern U.S., Norfolk Southern responded with a bid of its own to purchase Conrail. This started a takeover battle between Norfolk Southern and CSX

In 1997 during the Conrail battle with CSX which was handled by the parent Norfolk Southern Corporation, the Norfolk Southern Railway finally absorbed the Norfolk and Western Railway into their rail system, ending the existence of the Norfolk and Western Railway.

On June 23, 1997, NS and CSX filed a joint application with the Surface Transportation Board (STB) for authority to purchase, divide, and operate the assets of Conrail. On June 6, 1998, the STB approved the NS-CSX application, effective August 22, 1998. The process though wasn't completed until 1999.

In 1999 the Conrail takeover between Norfolk Southern and CSX was complete, the result was Norfolk Southern acquired over half of Conrail which was 58% while CSX got the remaining 42%. Norfolk Southern gained about 7,200 miles (11,600 km) of track, most of which was part of the former Pennsylvania Railroad. Norfolk Southern began operating its trains on its portion of the former Conrail network on June 1, 1999, closing out the 1990s merger era.

In 2015, the NS completed the acquisition of 282 miles of the Delaware & Hudson Railway Co.'s (D&H) line between Sunbury, Pa., and Schenectady, N.Y. for 214.5 million dollars from the Canadian Pacific The acquired lines connect with NS' network at Sunbury, Pa., and Binghamton, N.Y., and they provide NS single-line routes from Chicago and the southeastern United States to Albany, N.Y., and NS' intermodal terminals in Scranton, Pa., and Mechanicville, N.Y. NS also gains an enhanced connection to its joint venture subsidiary Pan Am Southern, which serves New England markets. Additionally, NS has acquired D&H's car shop in Binghamton along with other facilities along the corridor.^[8]

To date, both the Norfolk Southern Railway and CSX Transportation have a duopoly over all east-west freight rail traffic east of the Mississippi River.

Operations

A westbound Norfolk Southern intermodal train rolls through Union, NJ.

NS is a major transporter of domestic and export coal. The railroad's major sources of the mineral are located in: Pennsylvania's Cambriaand Indiana counties, as well as the Monongahela Valley; West Virginia; and the Appalachia regions of Virginia, Kentucky, andTennessee. In Pennsylvania, NS also receives coal through interchange with R.J. Corman Railroad/Pennsylvania Lines at Cresson, Pennsylvania, originating in the "Clearfield Cluster".

NS's export of West Virginia bituminous coal, begins transport on portions of the well-engineered former Virginian Railway and the former N&W double-tracked line in Eastern Virginia to its Lambert's Point coal pier on Hampton Roads at Norfolk. Coal transported by NS is thus exported to steel mills and power plants around the world. The company is also a major transporter of auto parts and completed vehicles. It operates intermodal container and TOFC (trailer on flat car) trains, some in conjunction with other railroads. NS was the first railway to employ roadrailers, which are highway truck trailers with interchangeable wheel sets.

According to NS's 2012 Annual Report to Investors, at the end of 2012, NS had more than 30,943 employees, 3,468 locomotives, and 79,082 freight cars.

At the end of 2012, the transport of coal, coke, and iron ore made up 26% of the total operating revenue of NS, general merchandise (automotive, chemicals, metals, construction materials, agriculture commodities, consumer products, paper, clay, and forest products) made up 54%, and intermodal made up 20% of the total.

Company officers

CEO and President positions represent both the railroad and the holding company. CEO's and Presidents of Norfolk Southern have included:

• Robert B. Claytor, CEO: 1982–1987
• Arnold B. McKinnon, CEO and President: 1987–1992
• David R. Goode:
  • CEO: 1992–2005
  • President: 1991–2004
• Charles "Wick" Moorman:
  • CEO: 2005–present
  • President: 2004–2013
• James A. Squires:^[9]
  • President: June 1, 2013–present

The Norfolk Southern Loop of the Grand Kids Layout

The plan is to include 2 GE ES44AC locomotives to pull the Freight Train

and I currently have 2 Boxcars to add to the rolling stock of the train

A Tank Car

and a 3 bay hopper with a coal load

and followed up with a caboose

GE Evolution Series ES44AC Locomotives

From Wikipedia, the free encyclopedia

The Evolution Series is a line of diesel locomotives built by GE Transportation Systems, initially designed to meet the U.S.EPA's Tier 2 locomotive emissions standards that took effect in 2005. The first pre-production units were built in 2003. Evolution Series locomotives are equipped with either AC or DC traction motors, depending on the customer's preference. All are powered by the GE GEVO engine.^[4]

The Evolution Series was named as one of the "10 Locomotives That Changed Railroading" by industry publication Trains Magazine.^[5] It was the only locomotive introduced after 1972 to be included in that list.^[5]

ES44AC

Iowa Interstate Railroad #505 enters Blue Island, Illinois.

Citirail (CREX) ES44AC no.1203 in March 2014.

Union Pacific C45ACCTE #7767 inDenton, Texas

The ES44AC (Evolution Series, 4400 HP, AC traction) replaces the AC4400CW model in GE's range. These locomotives have been ordered by every Class I railroad in North America: Union Pacific Railroad (who refers to these locomotives as theC45ACCTE), BNSF Railway, CSX Transportation, Norfolk Southern Railway, Kansas City Southern Railway, Kansas City Southern de Mexico, Ferromex, Canadian Pacific Railway, and Canadian National Railway. Iowa Interstate Railroad ordered 14 ES44AC's in April 2008 to be delivered by October 2008 to handle an expected traffic growth of 25%-30%, resulting from new ethanol plants coming on line.^{[citation needed]} Iowa Interstate ordered two additional ES44AC's to be delivered in December 2009. Iowa Interstate again ordered 3 additional GE ES44AC's after selling 2 of the railroads EMD SD38-2's for the new ethanol plants.

CSX began receiving an order of 200 ES44AC's (referred to by CSX as the ES44AH) in December 2007. The "H" in ES44AHstands for "heavy", which is in reference to a combination of subsystems that produce high levels of tractive effort at low speeds. In order to be classified as an "AH" by CSX, a locomotive has to have not only an increased nominal weight (currently to 432,000 pounds or 196,000 kilograms), but also (1) steerable trucks, (2) TM3 adhesion control software, (3) software that extends to 33,000 pounds (15,000 kg) from 30,000 pounds (14,000 kg) the maximum amount of tractive effort that each traction motor is permitted to produce, and (4) GE's Rail Cleaner, which directs high-pressure air onto the rails in front of the sand nozzles forward of axle number one.

In September 2008, Norfolk Southern purchased 24 ES44AC's numbered 8000-8023, and began receiving the first of these units in October 2008. Ordered to be used on long haul coal trains, they were the first new AC locomotives ever purchased by NS.^{[citation needed]} An additional 65 units were ordered in 2011, numbered 8025-8090. 24 more units, numbered 8091-8115, were ordered at the beginning of 2012. 10 of these units: 8025, 8098-8105 & 8114 were painted in predecessor company "heritage" paint schemes for NS's 30th anniversary. All NS ES44AC's are built to CSX specifications, with the exception of the Hi-Ad trucks & headlight placement.

KCS's units are all painted in a Southern Belle paint scheme.^{[citation needed]}

Cemex took delivery of one ES44AC - built to CSXT (units 700-839) specifications - numbered 81, in March 2008.

Canadian National's first order of ES44AC's was in January 2012, and as of 2015 they roster about 150 units, numbered in the 2800-2900 series.

Citirail/CREX acquired 100 ES44AC's for lease service. They are painted gray with blue & yellow nose striping and blue numbers. Most, if not all of these units, are leased to BNSF Railway.

In 2013, General Electric built one ES44AC, GECX 3000, as a test bed for their NextFuel natural gas power kit. The engine runs on liquefied natural gas from a fuel tender. The unit is currently part of BNSF's GE LNG test set, partnered with BNSF ES44AC no. 5815.