CBR On Steroids -- March 21, 2021

Updates

March 23, 2021: further reporting from the Calgary [Alberta] Financial Post.

March 22, 2021: 75% chance regulators won’t approve it.

Original Post

The headlines:

• Canada's Canadian Pacific railway to buy Kansas City Southern: $25 billion. Reuters.
• Largest deal of 2021. ZeroHedge.
• Will link Canada, US, and Mexico. Yes, Captain Obvious. The Wall Street Journal. But will also link Pennsylvania-to-Florida corridor. Maybe change the name to Can-Am-Zephyr.
  

My not ready-for-prime-time reply to the reader who alerted me to the story early this morning:

I think I blogged about KSC a couple of times on the blog.

KCS's "monopoly" into Mexico is huge. I was tempted to invest in KCS for that reason alone years ago but there was huge risk that new Mexican president would put huge restrictions on KCS. I was happy with BNSF and UNP.

Deal:

• The KCS deal: $30 billion.
• Buffett's BNSF deal: $34 billion.

Track:

• Canadian Pacific: 14,700 miles
• KCS: 3,400 miles
• Buffett's BNSF: 32,500
• UNP:  32,100

In this case, the relatively few KCS miles of track make the Canadian Pacific a "much bigger" company than just adding the two: the sum of the parts is much greater than the whole.

So:

• CN buys 3,400 miles of track for $30 billion.
• Buffett bought 32,500 miles of track for $34 billion.

I must be missing something or have the numbers wrong. Folks can fact-check me on the numbers.

BNSF and UNP overlap / compete west of the Mississippi. BNSF and UNP are huge out of Chicago, south to Texas, west to California.

Regulators probably would have frowned on Buffett buying KCS, and if the money numbers above are correct, I doubt Buffett would have wanted to spend that much money on another railroad.

But this deal is huge. Besides the Canadian to Mexico angle, Canadian Pacific now has access to Norfolk Southern which is the entire east coast of the US (Alabama to Pennsylvania) through the Meridian Speedway.

This is simply huge.

CBR: Suggestion -- overlay the new CN-KCS route with the might-have-been Keystone XL. This is not rocket-science. 

This was almost a no-brainer in retrospect. With or without oil / CBR, this is a huge deal for CN -- Canadian wheat direct to Mexico. Several story lines here; maybe later.

When was the cherry placed on top of this sundae? When the Keystone XL was killed.

It takes "years" to put together a $30-billion deal -- this certainly suggests CN was ready to pounce if the Keystone XL was killed. 

Memo to self: what company manufactures oil tankers and hoppers for railroads?

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here. 

Graphics:

How long is the Meridian Speedway? 320 miles, from Meridian, MS, to Shreveport, LA. How big is the Meridian Speedway? It has its own wiki entry. This was a joint venture between KCS and a subsidiary of Norfolk Southern Railway.

Link here, also.

• Streamlined route when traveling from the Northeast to Dallas and back
  • Fastest route from the Northeast to Dallas
  • Minimal potential for winter weather delays through a more southern route
  • Limited exposure to congestion and crosstown hassles present in other interchange cities
• Rail-controlled and asset-based Trailer on Flat Car and Container on Flat Car service
• End-to-end steel wheel interchange for our intermodal customers
• Fastest route from southern California to the southeast portion of the U.S.

Link here. I like this map better for various reasons. 

If "they" can make money on shipping wheat by rail (WBR), certainly "they" can make money by shipping "crude" by rail (CBR). And look how that CP line runs right where the DAPL runs. This is not rocket science, and it's very, very good news.