With the love triangle between Kansas City Southern, CN and Canadian Pacific behind them, KCS and CP are forging ahead with seeking opportunities to expand service and volumes for intermodal and automotive and grain volumes, among others.
A single-line service from the Great Lakes and into Mexico and Canada could untap investment and attract manufacturers, said KCS President and CEO Pat Ottensmeyer, who was joined by CP President and CEO Keith Creel in a call Thursday morning to discuss the pending merger with investors.
“We think this benefits our employees by enabling us to become a larger and growing continental enterprise,” Ottensmeyer said.
CP Chief Marketing Officer John Brooks said the merger would enable CP to focus on company segments where CP could “instill discipline” and become more targeted in selling services such as domestic intermodal in Canada. The merger enables a combined CP and KCS to “replicate what we’ve done with Maersk” in western Canada, as well as compete vigorously in the automotive industry, Brooks said, adding that the combined company also could put bulk grain trains onto KCS’ network similar to CP’s grain train program.
The merger also would provide the combined company with access to the ports of Vancouver and St. John in Canada and Lazaro in Mexico, with the latter being significant because it could potentially serve as an alternative to the busy Southern California ports of Los Angeles and Long Beach, according to Ottensmeyer and Creel.
Lazaro’s port authority has invested a lot of money in the port in recent years, and there is still a tremendous amount of physical space for the port to grow, Ottensmeyer said, pointing out the port provides an opportunity to serve the Texas, Gulf Coast and Southeast markets.
CP (NYSE: CP) plans to submit to the Surface Transportation Board an amended application to acquire KCS (NYSE: KSU) sometime by mid-October, according to Creel. Shareholder votes could occur in early-mid December and an approval from Mexican oversight regulators could occur sometime in the next two to four months. Following approval from Mexican regulators, CP would close on the voting trust for KCS that STB already approved in May. CP is asking for a 10-month review of its acquisition application, Creel said.
To allay concerns from customers and other Class I railroads about how the merger could affect service and access to gateways, Creel said CP wouldn’t behave in a predatory manner should the merger proceed. He also said CP’s end-to-end combination makes it different from previous mergers because those combined two railroads with network overlaps, resulting in concessions.
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