Hostile bid for CP Rail could start toppling railway acquisition dominos
Brookfield and Goldman Sachs are apparently preparing a hostile takeover bid for Canadian Pacific Railway, the second largest railway in Canada. If it does this, CP will have no choice but to open bidding to all interested purchasers, and there is one purchaser who will not be outbid. Its name is Union Pacific, the largest railway in the world. And from there, the dominos will fall.
Seven years ago, Canadian National tried to purchase Burlington Northern Santa Fe to make a railway called, simply, North American Railway. The bid was not blocked by the numbers, which worked, but by US regulators who flipped at the possibility of a Canadian railway owning the US' second largest railway. It resulted in Union Pacific and Canadian Pacific discussing a merger in reaction.
If CP is sold, it will almost certainly be sold to its major partner UP. From there, BNSF and CN will almost certainly merge, and the remaining three class 1 railways in the United States, Kansas City Southern, Chessie Seabord, and Norfolk Southern will almost certainly be absorbed by either of the two super-railways created by the other mergers.
From 7 major railways in North America, by this time next year we may have just two remaining. At a guess, a combination of CN-BNSF-CSX (North American Railway) competing with a combination of UP-CP-NS-KCS (Union Pacific).
The result of this is difficult to predict, but when Union Pacific absorbed Southern Pacific and Chicago North Western, the railway went into a near complete meltdown. Similarly, the acquisition by CN of BC Rail a few years ago and the subsequent spate of serious derailments shows that these operations are seldom smooth.
Legislators in both countries need to ask themselves if this is the scenario we want, as we are now on that road.
Posted at 10:59 on July 18, 2007