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With Norfolk Southern the subject of repeated bids from Canadian Pacific, Berkshire Hathaway is considering jumping into the bidding too. And, while everyone has been focusing on Norfolk Southern, BNSF has interest in CSX as well.
“CSX would be at an enormous (competitive) disadvantage and so there would be another step towards consolidation,” Matt Rose explained to Reuters.
As for Norfolk Southern, the railroad rejected Canadian Pacific’s initial offer in early November and its most recent offer last week. There are significant questions on whether regulators would approve the deal, even if the price was right.
Grossly Inadequate
“Canadian Pacific’s revised, reduced proposal is not only less than what the Norfolk Southern board has already found to be grossly inadequate, it is even more uncertain and risky given the decrease in the cash consideration,” said Chairman, President and CEO James A. Squires in a statement released by the railroad. “In addition to being grossly inadequate, the proposal is based on a voting trust structure that we reviewed and do not believe would be approved by the STB. Yesterday we released a white paper by two former STB chairmen who believe that the STB would not approve any voting trust structure because there is no basis to determine that it would be in the public interest.”
STB Approval?
Norfolk Southern’s white paper by former Surface Transportation Board commissioners Francis Mulvey and Charles Nottingham concluded that, “As simple background, rail carriers cannot assume control of another carrier without prior STB approval. The STB’s approval process can last between 19 and 22 months. Current STB regulations, adopted in 2001, set a high bar for approval of a proposed major merger and related voting trust based on an untested public interest standard. In our expert opinions, the STB is not likely to approve CP’s proposed voting trust or the CP+NS merger.”
BNSF Jumps Onboard
BNSF Railway chairman Matt Rose has indicated that BNSF is interested in either Norfolk Southern or CSX depending on the outcome of Norfolk Southern’s status.
“I’ve had general conversations with both of them and told them that we’re going to watch this with interest,” Rose told Bloomberg News.
While the path to North American railroad consolidation is a bit murky, What is clear is that BNSF is unwilling to have the current balance of power in North American freight hauling shift too heavily to any one railroad.
As for a potential price, anything in the $27-$40 billion range is within Berkshire’s means with its cash on hand and strong financing ability. The company is is still in the middle of its $32 billion acquisition of aerospace manufacturer Precision Castparts, but sometimes there is a parade of elephants.
(This article contains updated information from when it was first published.)
© 2015 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.