Western Railroad Discussion > Eyes on BNSF for Merger's.
Date: 11/18/05 15:56
Eyes on BNSF for Merger's.
Author: Nbetween
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.
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.
This deal was shot down
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