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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

This entry has been archived. Comments can no longer be posted.

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eeid writes at Wed Jul 18 13:09:27 2007...

Note that the Caisse de depot is one of the stakeholders in this purchase.

This will turn socialist economics in its head. The caisse should be buying oil refineries jointly with Venezuela, not CP Rail.

Something is not right here.

Dave P writes at Wed Jul 18 13:29:49 2007...

I think the larges railway in the world is the Indian national railway.

my god, what if they get interested in CP rail?

Dave P writes at Wed Jul 18 13:35:27 2007...

I fine the UP/SP meltdown fascinating - gives an insight to how fragile some of these rail systems are. Close one yard in Houston, and the entire system grinds to a halt.

Nathan writes at Sat Jul 21 00:42:44 2007...

If all these railroads merge, my railfanning comes to a big end for good.

The_Confused_CNConductor writes at Sun Jul 22 09:43:45 2007...

Well there's always CN !!! :P

cdlu writes at Tue Oct 2 14:38:11 2007...

Worth noting that since posting this, CP has purchased DM&E, a larger regional carrier in the US, shifting CP from prey to predator, and CN has purchased the EJ&E, a smaller regional that will streamline its operations through North America's biggest rail hub of Chicago.

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