Merged railroads could benefit by a way to skirt congestion in Chicago and the boom in shale oil.
Canadian Pacific Railway approached CSX Corp. about a possible merger of the two railroads, according to an article that appeared in the Wall Street Journal which cited unnamed sources.
The article said a merger of the two railroads could be beneficial by giving the companies “an increased ability to exploit the North American energy boom” by moving oil from the Bakken formation in North Dakota to East Coast refineries.
In an investment note, brokerage firm Stifel noted a merger of the two railroads would “give Canadian Pacific a way to run around Chicago,” something it said Hunter Harrison, chief executive of Canadian Pacific, “covets.” It also said a merger could eliminate duplicate overhead, and CSX could benefit from “intensive operational overhauls that have made Mr. Harrison a legend among investors and railroaders, alike.”
Stifel said at a recent investment day with analysts, Harrison “discussed his plans to divest the southern portion of the railroad formerly known as the D&H.”
“No one we talked to thought that CSX could be the buyer,” the firm said. “The question then becomes if discussions to sell the southern portion of the D&H line to CSX morphed into a discussion of a merger between Canadian Pacific and CSX. We believe it is certainly possible, if not probable.”
However, a merger of the two railroads could spur more consolidation in the industry, as Norfolk Southern, CSX’s major competitor might also seek a partner.
“Two simultaneous mergers of this magnitude would likely make the regulators north and south of the border that much more nervous,” Stifel said.
USA Today said neither company would comment on the report.
Reports say Canadian Pacific interested in merger with CSX
