CP's Norfolk bid riles U.S. railroads, ups merger chances
By Nick Carey
CHICAGO Jan 19 (Reuters) - A legal protest by Canadian Pacific over a meeting among big U.S. railroads about mergers in their industry has highlighted maneuvering in the sector to cope with a rapid downturn and possible consolidation.
Canadian Pacific Railway on Tuesday asked the U.S. Justice Department to look into statements by U.S. railroads, in the wake of the meeting, about "working closely with each other to block" its bid for Norfolk Southern Corp.
The U.S. railroads met late last year in the presence of lawyers, saying they merely discussed a merger's impact on the industry. Interviews with U.S. railroad executives show some oppose mergers, others tout possible benefits.
Tuesday's flap, where Canadian Pacific accused U.S. railroads of adopting an "anticompetitive" strategy, shed light on chances for further consolidation, with eyes on No. 3 U.S. railroad CSX Corp as a future target.
"If Canadian Pacific's bid for Norfolk Southern goes ahead, then CSX will be the next domino to fall," said Scott Rostan, who worked on the Merrill Lynch team advising Norfolk Southern during its battle with CSX in the 1990s for control of Conrail, which was ultimately carved up between them.
Canadian Pacific in mid-November disclosed its $28 billion offer to buy Norfolk Southern.
The bid coincides with a "freight recession" as falling commodity prices hurt North America's railroads. On Tuesday Moody's Investors Service warned of "increasing risks of an industrial recession" for North American manufacturers. Canadian Pacific, like the broader Canadian economy, is fairly reliant on commodity exports.
Some analysts see its Norfolk Southern offer as an opportunistic bid for a growth story while rail stocks are down. Continued...