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Canadian Pacific pushes for rail-sector consolidation

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Consolidation in the railroad industry

As discussed in the earlier part of this series, stocks of U.S. and Canadian railroads were up in October on news of consolidation in the railroad industry. Reports citing Pershing Square Management’s William Ackman, a major shareholder in Canadian Pacific Railway (CP), said the activist investor has been pushing for rail mergers that would ease congestion on North American tracks.

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Canadian Pacific ends exploratory discussions with CSX

In October, Canadian Pacific Railway (CP) said it has ended discussions with CSX Corporation (CSX), the largest railroad in the eastern United States, about a possible business combination. Canadian Pacific Railway said its proposed “integrated coast-to-coast combination was aimed at improving customer service, promote competition, alleviating congestion in North America – specifically the key Chicago gateway – and generating significant shareholder value.” A combination would offer “creative alternatives for shippers, greater fluidity, increased capacity and improved efficiency industry-wide.”

The Chicago interchange is used by six out of the seven major North American Class 1 railroads. Canadian Pacific (CP), Canadian National Railway Company (CNI), CSX Corporation (CSX), Union Pacific Corporation (UNP), Norfolk Southern Corp. (NSC), Kansas City Southern Railway Company (KSU), and BNSF Railway are the major railroads in North America.

Canadian Pacific Railway further added that such “pro-competition, customer-friendly, safety-focused railway combinations” would ease challenges facing the North American rail industry. These challenges include “moving more freight than ever with oil production, crop yields and consumer demand growing alongside the economy.”

The company also noted that “regulatory concerns appear to be a major deterrent for many railroads considering combinations.”

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Norfolk Southern’s shares rise on speculation

One of CSX Corporation’s (CSX) rivals is Norfolk Southern Corp. (NSC). Norfolk Southern’s shares rose on speculation that Canadian Pacific Railway (CP) could pursue Norfolk Southern after talks with CSX ended. CSX and Norfolk Southern are the major railroads in the eastern United States, while Union Pacific Corporation (UNP) and Berkshire Hathaway Inc.’s BNSF Railway are the major railroads that operate west of the Mississippi.

While analysts hinted that smaller network Kansas City Southern Railway Company (KSU) could be a potential target, Canadian Pacific Railway’s CEO, Hunter Harrison, said Kansas City Southern was “very expensive.” Reports noted that a combination with a major U.S. railroad would boost Canadian Pacific Railway’s value and add pressure on major rival Canadian National Railway Company (CNI).

Canadian Pacific sells a stretch of Delaware and Hudson line to Norfolk Southern

In November, Canadian Pacific Railway (CP) sold 282.55 miles of its Delaware and Hudson Railway to Norfolk Southern Corp. (NSC) for $217 million. The deal requires approval from the U.S. Surface Transportation Board. The acquisition will provide Norfolk Southern with single-line routes from Chicago and the southeast United States to Albany, New York. Norfolk Southern said the acquisition provides for a “more efficient rail transportation system by consolidating freight operations with a single carrier.”

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