Future For
CPR ?
Rail
Line Returns June 2001
Spin-offs
Values
CPLtd
Split/Merger Rumour Feb.2001
Tax
Revolt? Sept 2000
CP
- CN Arrangements July 2000
CP
- UP Arrangements Feb. 2000
CN
-BNSF Merger ? Dec. 1999 (2 essays)
C.P.R.
Plan and the market Autumn 1999
Canadian
Pacific Railway's, News Releases.
__________________________________________
WELLAND, Ont. ? Motorists in the Welland area are being
warned that regular
freight-train service will return to a 12.9-kilometre (8-mile)
section of
the long-dormant Canada Southern (CASO) rail line west of here
as of May 9.
Officers from regional detachments of the CPR Police
Service are telling
motorists to be on the lookout for trains where none have been
present for
several years, and signs warning that railway traffic will resume
have been
posted at 16 public level crossings on the CASO line between Hewitt
Rd. in
the Township of Wainfleet and Young St. in Dunnville.
New lights, bells, gates and electronic equipment have
been installed to
replace outdated safety equipment at six of those crossings.
Six trains per week will be rerouted to the CASO line
via Welland as a
result of the CPR?s decision to transfer or discontinue the 15.4-kilometre
(9.5-mile) northern half of its route from Smithville to Port
Maitland.
There is not enough traffic along this segment of the line to
generate
sufficient revenue for needed bridge repairs.
A new connecting track has been installed between the
east-west CASO line
and the southern portion of the CPR line to Port Maitland, known
for
administrative purposes as the Dunnville Spur. The two lines formerly
crossed through a ?diamond? intersection, which will be removed.
Freight service to and from Port Maitland will not
be affected, and there
will be no impact on CPR employees.
CPR and Canadian National jointly own CASO, but the
eastern end is under the
operational management of the CPR.
CPR provides rail freight transportation services coast
to coast over a
14,000-mile network extending from Montreal to Vancouver, and
throughout the
U.S. Midwest and Northeast.
CP rolls out values of
spinoffs
By KEITH McARTHUR
20:32 GMT-04:00 Wednesday, June 13, 2001
The breakup of Canadian Pacific Ltd. will give its
transportation companies
a book value totalling $4.7-billion, as Canada's best-known conglomerate
puts its operating units into the hands of shareholders later
this year.
After an intercompany payment designed to pay down
the parent company's
debt, Canadian Pacific Railway Co. will have a book value of about
$3-billion, while CP Ships will be valued at $1.7-billion.
Canadian Pacific Resorts & Hotels Inc. will have
a book value of
approximately $2-billion, while coal company Fording Inc. will
be valued at
about $600-million.
The book value of PanCanadian Petroleum Ltd., which
already trades publicly,
was $4.5-billion on March 31.
Each newly created company will have an investment-grade
debt level.
"CP Rail's net debt-to-capital ratio is about
50 per cent. That works out to
be right in line with the industry," said Winnie Siu, an
analyst with Salman
Partners in Vancouver.
"CP Ships, at 10 per cent [net debt-to-capital
ratio], looks really good.
Being a smaller company, it needs to attract investors. And one
way to do
that is to have a really low debt."
Both Canadian Pacific Resorts & Hotels and Fording
will have a net
debt-to-capital ratio of less than 20 per cent, the company said.
PanCanadian will make a $1.18-million payment to shareholders,
of which
$1-billion will go to CP, which owns an 86-per-cent stake in the
oil and gas
company. CPR will also make a one-time payment of about $700-million
to
assume its share of CP's debt.
Ms. Siu said the information released Wednesday may
give a small boost to
CP's share price in trading today. But she said the information
released
Wednesday will not help analysts trying to determine the market
capitalizations of the trading companies after the spinoff.
"None of these companies trade on book value.
They trade on earnings. Really
what it tells me is how well capitalized the companies are."
Dominion Bond Rating Service Ltd. Wednesday confirmed
CPR's medium-term
notes and unsecured debentures at a rating of triple-B with a
"stable"
trend.
"As a stand-alone company after the spinoff, CPR
will no longer be able to
count on [CP's] support in times of need, and this increases CPR's
financial
risk," DBRS analysts Kam Hon and Linda Scott wrote.
"However, CPR's financial profile has strengthened
recently with improved
profitability by focusing on asset utilization and service enhancements
to
increase operating efficiencies."
In February, CP ended years of speculation by announcing
that it would break
into five separately traded companies in order to boost the overall
value of
those units.
CP said Wednesday that it plans to hold a special meeting
of shareholders on
Sept. 26 where it will seek approval for the breakup.
The company said it will ask for court approval for
the plan shortly
thereafter, provided it has received an anticipated favourable
ruling from
Ottawa to ensure shareholders won't suffer an income tax hit when
the new
stocks are distributed.
Once the separation is completed, what was the parent
company will become
the hotel business and focus on the Delta Hotels chain and its
controlling
stake in Fairmont Hotels and Resorts.
Meanwhile, CPR shuffled its senior management ranks
Wednesday, appointing
57-year-old Ed Dodge as the No. 2 executive with the company.
Observers said the appointment of Mr. Dodge as chief
operating officer
appears to make him the heir apparent to president and chief executive
officer Rob Ritchie, who has said he wants to step down in two
or three
years.
Hugh MacDiarmid, the company's 49-year-old commercial
vice-president, is
leaving the company.
CPR spokesman Len Cocolicchio said Mr. MacDiarmid is
leaving for personal
reasons — in part because Mr. Ritchie is planning to stay
at the helm for at
least two more years.
"The fact that the leadership of the company won't
change for some time was
one of the factors in his decision, but it was his decision,"
Mr.
Cocolicchio said.
Mr. Dodge has a 30-year career at CPR. Most recently,
he worked as the
executive vice-president of operations. He will maintain those
duties and
also assume Mr. MacDiarmid's responsibilities.
CP also announced Wednesday that its preferred shareholders
will be given
the choice between receiving $26 a share (plus accrued and unpaid
dividends)
or obtaining a unit in a dividend fund with a 2004 redemption
date
Canadian
Pacific Ltd Split Spurs Rumours of Mergers
BY COURTNEY TOWER
JoC ONLINE; Wed., Feb 14 2001
OTTAWA -- Canadian Pacific Rwy. Co., a storied "ribbon
of steel" that knit a
far-flung Canada together in 1885, is about to become the independent
railway company it once was.
But, perhaps not for long. And, perhaps, no longer
Canadian.
After the railroad's holding company said Tuesday that
it was splitting its
transportation and energy holdings into five separate companies,
analysts
and media speculated that CPR might be swallowed up by Union Pacific,
the
largest rail carrier in the U.S., with which it already has various
freight
traffic alliances.
Canadian Pacific is the smallest of the six remaining
Class I railways in
the U.S. and Canada.
The other takeover company most-commonly mentioned
is CPR's larger domestic
and continental rival, Canadian National Rwy., which is developing
into a
major North American player.
"Union Pacific probably would be interested in
a partner in Canada,
especially if the CN-Burlington Northern Santa Fe merger were
to go ahead,"
Avi Dalfen, an analyst with Research Capital Corp. in Toronto,
said. As the
smallest of the Class I railways, it is a natural takeover target
from the
point of view of carriers, though not necessarily of competition
regulators,
he said.
Union Pacific and CPR are longtime allies and UP's
chief executive, Richard
Davidson, is reported by analysts to have said UP already has
"taken a hard
look" at buying CPR.
As for a merger of CN and CP, "it would make huge
business sense since they
already are cooperating on parts of their networks," Dalfen
said.
He noted that CN president and chief executive Paul
Tellier told analysts
recently that a CP-CN merger was feasible and that he would welcome
a review
of such a possible merger by government authorities. Tellier's
view was that
"intermodal competition" would remain even with one
national railway left.
If a merger of the two Canadian national railways were
forbidden after such
a review process, one with an American railroad" would become
more
palatable," Dalfen said.
David O'Brien, chairman of Canadian Pacific Limited,
the holding company for
CPR, CP Ships and three other companies in hotels, petroleum and
coal,
announced Tuesday that CPL was splitting them off into five publicly
traded
companies. He said there is no legal impediment in Canada to foreign
ownership of CPR but that the federal government would face a
"huge public
policy concern."
anada's two national rail lines run more or less parallel
to each other
across the country. While there would not be end-to-end laying
together of
two systems, as there was when CN took over Illinois Central in
the U.S., or
in its present proposed takeover of Wisconsin Central Transportation
Corp.
in the U.S., "the reduction of overlap and the paring down
of redundant
track are not really the game anymore," said Mark Mettrick,
transportation
analyst at Standard and Poor's Rating Service, in Toronto.
Benefits to an American line or CN of a CPR takeover
lie more in larger and
more integrated "information systems and interchange systems
that allow
seamless billing, shipping and tracking," Mettrick said.
Nothing will happen until a moratorium on railway mergers
imposed by the
Surface Transportation Board in the U.S. ends in June. A review
underway now
will produce a policy that would affect CPR. Canadian Pacific
has 14,000
miles of its own track, including 4,800 in the U.S. Midwest and
U.S.
Northeast. It has running and haulage agreements and other connections
with
U.S. railroads serving New York City, Philadelphia and Washington,
DC, in
the east, Montreal-Chicago for the Midwest, and on the West Coast
of North
America.
With Union Pacific and two Mexican railroads it takes
part in a seamless
intermodal service linking Canada, the U.S. and 16 Mexican markets.
CPR and CNR tried and failed three times in the 1990s
to put their eastern
North America networks together. Last year they went the "co-production"*
route. They agreed to share tracks in Ontario, the U.S. Midwest
and the
Northeastern United States. They already had an agreement to carry
each
other's trains in parts of British Columbia.
CPR is largely a carrier of grain, coal, fertilizers,
potash and mineral
resource products, mostly from Western Canada into the U.S., or
to export at
Vancouver, British Columbia. It also carries 80% of the intermodal
freight
between the Port of Montreal and the U.S. Midwest and industrialized
Central
Canada. It carries 60% of the intermodal traffic of the Port of
Vancouver.
Tax
Revolt?
Will railways join transportation tax revolt?
By Greg Gormick
Special to The Star
TILLSONBURG - If you've ever wanted to buy, build or run a railway,
don't do it in Ontario. That's the advice of many current railroaders,
who see no common sense in the railway policies and tax structures
of
Premier Mike Harris' provincial government.
``I won't say it's the worst place in Canada
to run a railway,'' says
Jeff Willsie, president of Ontario Southland Railway. ``I think
the taxes
are higher in Saskatchewan. But ours is the largest and most important
component of the national rail system, so the tax haul is even
larger in
Ontario.''
Ontario's railway system includes more than
11,000
kilometres of track and employs more than 8,000. The
impact on key industries in southern Ontario is massive.
The automotive plants, for example, ship about 90 per
cent of their finished vehicles by rail to all parts of
North America.
Ontario's railways pay a federal fuel tax of 4 cents per
litre, a provincial fuel tax of 4.5 cents per litre and
capital, sales and property taxes to various levels of
government. In 1998, the taxes totalled more than $100
million in Ontario for Canadian Pacific Railway and
Canadian National Railway alone. The next highest total
was about $65 million in British Columbia.
The railways point out that railway taxation
in
Canada is 52 per cent higher than in the United States. The
difference is even higher in Ontario.
The biggest sticking point in Ontario, say
the railways,
is property tax. Although it is collected by the
municipalities, it is sanctioned and structured by
Ontario's Assessment Act and various other provincial
laws. It is, the railways say, a mess stretching back
through the previous New Democratic Party and Liberal
governments, and beyond. And the railways want the tax
changed. Other provinces have.
Quebec revised the entire railway tax structure and now
rebates municipal property taxes directly to the
railways. The Quebec view has been that railways are
vital to the provincial economy. Also, taxpayers are
seen to benefit because railways keep traffic off
publicly subsidized highways.
This hasn't been done in Ontario. And Willsie sees the
effects of this high taxation while sitting in two
different engineer's seats.
As president of Ontario Southland Railway,
he is one of
a handful of entrepreneurs who have saved uneconomic
lines dumped by the big railways, operating the lines at
lower cost and with the sort of locally based customer
service provided by independent truckers. He operates
two former CPR branch lines, one between Tillsonburg and
Ingersoll, the other from Campbellville to Guelph. He
also provides contract switching of tank cars at
Petro-Canada's Clarkson refinery.
He's acutely aware of the high cost of doing
railway
business in Ontario.
``On the 28 kilometres of track between here and
Ingersoll, I pay $43,000 in property taxes each year. My
truck competitors use the parallel Highway 19, which the
province built and has now downloaded on to the local
governments. The truckers supposedly pay to use it
through their fuel taxes, although that doesn't come
near covering all those costs.
`I pay for all my own infrastructure, I pay taxes on it
and I still have to pay the same fuel tax that the
truckers do. Today, we're doing tie replacement on the
line. Do you see the government paying for it?''
The tax sting is doubly painful for Willsie. He says his
taxes pay for the infrastructure that his truck
competitors use to get traffic away from his railway.
Willsie sees the damage being done by this
skewed
taxation from a dual perspective. When he's not
supervising the operation of his low-margin
shortlines, he's the engineer on a CPR freight train known
as the Guelph Junction Wayfreight. That train serves industries
between London and Campbellville; and brings in and
takes out the carloads generated on his shortlines,
which connect with the CPR main line and thereby keep
the local industries plugged into the North American railway grid.
``You remove those exorbitant taxes and there will be
investment in expanded track capacity, new signalling,
new equipment and specialized technologies such as the
CPR's Expressway and CN's RoadRailer, which take truck
trailers off the highways and actually help the environment,''
he says.
The railways estimate that correcting the property tax
problem would save them $30 million annually.
They say this is a small amount for the Ontario government, but
could buy such useful tools as 10 to 15 new,
fuel-efficient locomotives to cut costs, fuel consumption and
emissions.
The railways point out that, on their own, they have
bought new equipment that has resulted in a 2 per cent
drop in emissions every year since 1975.
Meanwhile, independent studies have determined that
trucks require five times more fuel to haul a tonne of
freight than trains.
----------------------------------
After years doing a slow boil, the railways are building up to
a
full head of steam
----------------------------------<
But after years of doing a slow boil, the railways
may
finally be building up to a full head of steam.
While no one within Canada's two big railways
was
anxious to discuss it, the Railway Association of
Canada, a trade group that represents all railways, has
hired a top-gun lobbyist with connections to the Harris government.
Leslie Noble, owner of Strategy Corp., will
marshall the
railways' arguments and deliver the message to her
former political colleagues.
Noble was part of the team that crafted the Tories'
winning 1995 election strategy. Her firm is credited
with putting the government's own bus-deregulation bill
into the ditch on behalf of client Laidlaw Inc., the
owner of Greyhound Canada and Voyageur Corp.
As a Liberal, York South-Weston MPP Joe Cordiano
is no
fan of Noble or the government's own cheque-book
approach to opening the Premier's door.
But Cordiano admits the railways have made
a smart move
in hiring her because ``if that's the way this
government treats important issues such as this one,
then you are forced to play their game.''
Cordiano flagged the issue of unfair railway taxation on
his own during the November, 1998, debate on the Harris
government's privatization of Highway 407.
``That brought new meaning to the term `highway
robbery,' '' he says. ``This government was so anxious
to do a deal that they made the highway tax exempt in
perpetuity. I said it was wrong to grant a tax exemption
to a private company that was in the infrastructure
business. It was not only cheating the public, but it
was going to damage the railways, which are private and
competing companies in the infrastructure business.''
Cordiano's arguments were rebuffed by Privatization
Minister Rob Sampson, who said Highway 407 didn't
compete with railways, only with the publicly owned
highways.
The tax giveaway to the owners of Highway 407 totals $90
million annually, according to Cordiano's calculations.
That's three times the annual tax relief that Ontario
railways seek.
Cordiano says the railway rights-of-way are
vital to the
creation of a public transportation system that will
leave different options open to solve the congestion,
pollution and transportation funding problems afflicting
Toronto and the entire 905 region, where the Harris
government draws much of its political support.
``You're never going to start fixing this problem if you
chase the railways away,'' says Cordiano. ``And if you
don't fix this tax problem now, you are going to chase
the railways away.''
It was only because of a request from federal Transport
Minister David Collenette that CN and the CPR delayed
the abandonment of several lines in the Greater Toronto
Area that are vital to GO Transit commuter and VIA
intercity passenger operations, but no longer required
for freight service.
Both CN and the CPR have, in the past, sketched out
worst-case scenarios on how captive to Ontario the
railways aren't. They would continue to serve the
largest industries in southern Ontario, but could still
provide a transcontinental service by bypassing northern
Ontario. Both own track around the south end of the
Great Lakes or have trackage rights on other railways.
----------------------------------
Government critics point out
Highway 407 was made tax exempt
in perpetuity
----------------------------------<
Combined, these U.S. lines would allow CN and
the CPR
operate Toronto-Vancouver trains by way of Detroit,
Chicago, Minneapolis, Duluth and other points around the
south side of Lakes Michigan and Superior. This would
allow the elimination of about 1,600 kilometres of
trackage in Ontario for each railway.
That would jeopardize the future of industries
and jobs
in Parry Sound, Sudbury, Thunder Bay, Dryden and Kenora
and dozens of other Northern Ontario towns.
When northern lines have been blocked for various
reasons in the recent past, both railways diverted
trains through the United States.
Roger Cameron, general manager of government and public
affairs for the Railway Association of Canada, says the
railway industry's intention is not to get out, but to
get even deeper into the economic fabric of Ontario.
``This is not a railway issue. It's a matter of economic
competitiveness. We are a solution to road and border
crossing congestion. The railways handle about 40 per
cent of Canada's trade with the United States. About 80
per cent of all that goes through Ontario rail border
gateways.''
Cameron points out that trains are now often pre-cleared
electronically by customs and roll through the border
without stopping, while trucks spend hours there. He
says this can be a key competitive advantage in an
increasingly international trading economy.
That it has taken this long to raise and move the issue
forward is still a source of frustration to shortline
operator and CPR locomotive engineer Willsie.
Yet, he says, the timing may be just right for a resolution.
`The truckers are getting the bulk of the
freight-traffic revenue by using government-built
highways. They're saying that, despite that hidden
subsidy, they need a penny or so knocked off their fuel
taxes, or else they will collapse and shut down the
whole transportation system.
``The railways have continued to operate even without
the subsidies and with punitive taxes. Even a politician
should be able to understand that we can correct this
problem and get the system rebalanced if we get fair taxation.''
-------------------
Greg Gormick is a transportation writer and
consultant.
CP/CN?
Since the joint announcement of July 21 by
CP/CN regarding sharing of trackage in Canada & United States;
no doubt one can see CPR operating their own trains on CN Lines
from Montreal to Halifax, N.S.-most likely over CN,s National
Transcontinental line(NTR) via Edmundston, N.B.-Moncton-Halifax.
I don,t know about CP,s former line Montreal through Maine to
Saint John, N.B.(now Canadian American Montreal-Brownville Jct.
Maine, then Irving Group,s Eastern Maine-from Brownville Jct.
to McAdam, N.B., New Brunswick Southern R.R. from McAdam to Saint
John. CP through trains would then continue from Saint John on
CN via Moncton-Truro, N.S. then into Halifax.
If this happens; most likely CP most likely would run over CN,s
NTR line into Moncton from Montreal-then the Moncton-Halifax route.
I can see this for container traffic especially, and the possibility
of CP Ships diverting to Halifax-its Lykes Lines Ltd., Contships,
Americana Ships which includes the recent purchase of Norway,s
Christensen Canadian Africa Line. These lines of CP Ships originate
out of South Africa, Mediterranean ports from Italy, Greece, Egypt,
France, from Southern Europe such as Portugal, Spain etc, from
Northern Europe UK, France, Belgium. Germany etc. The CP Ships
Group of Companies operate in and out of every major U.S. port
along the Eastern Seaboard and Gulf of Mexico ports, also certain
runs continue to Carribean, Mexican, Central America to South
America including Argentina, Brazil etc. Contships is an "Around
The World" service and CP,s Lykes Lines is next.
CP,s Australia New Zealand Direct line concentrates on the South
Pacific Service-Australia-New Zealand-Fiji-Mexico-Los Angeles-Sanfrancisco/Oakland-Seattle.
ANZDL under its subsidiary Union Direct Line operates strictly
in the South Pacific-Australia-New Zealand-Tasmania-Fiji Islands-Tahiti
etc.
CP,s Canada Maritime and Cast Container Line on service to and
from Canada on the Atlantic concentrate on Montreal, on its routes
from Southern Europe on the Mediterranean from Italy, France,
Spain, Portugal, their Northern Europe service-UK, France-Belgium-Germany.
If enconomics dictate that some of CP Ships routes call at either
Halifax or Saint John on their Northern Europe and Southern Europe
services; then once could no doubt see CPR with its container
trains in and out of the Maritimes with running rights over CN
east of Montreal. No doubt CPR would sign contracts with other
shipping lines.
Financially, major shipping lines on the North Atlantic calling
at Eastern ports in Canada-prefer using Montreal as being more
economical.
One will wait and see; if my prediction will come true-both Halifax
& Saint John were important to Canadian Pacific in the days
of its Trans-Atlantic passenger liners; such as the "White
Empresses", its "Duchess and Mont" liners, and
other former great CP Liners.
Don Scott-Coquitlam, B.C.
?
?
The Globe and Mail, Saturday, February 26,
2000
CP considers U.S. merger to combat archrival
CN
CEO tells analysts a link with Union Pacific could be forged if
CN-BNSF marriage gains approval
By Andrew Willis
Toronto -- Canadian Pacific Ltd. is prepared
to forge a railway link with Union Pacific Corp. -- an alliance
that could lead to the breakup of the venerable Calgary-based
conglomerate -- if archrival Canadian National Railway Co. is
allowed its own U.S. mega-merger.
In a recent meeting with analysts and institutions
at Toronto's Royal York Hotel, CP chief executive officer David
O'Brien explained that his company is forging closer ties with
long-time ally Union Pacific as a competitive response to the
proposed merger of CN Rail and Burlington Northern Santa Fe Corp.
"CP management indicated that should the
CN-BNSF deal get approved by regulators, it could trigger a CPR-Union
Pacific merger," said a report this week from transportation
analyst James David at investment dealer Bunting Warburg Dillon
Read Inc. The analyst, who was at the meeting with Mr. O'Brien,
wrote: "A concurrent spinoff of CPR would provide the most
transparent platform for this potential transaction.
Another analyst who took in Mr. O'Brien's briefing,
Glynn Williams of Newcrest Capital Inc., wrote a report this week
that said: "CP has entered into talks with Union Pacific
that could lead to either a commercial alliance or a full-blown
merger, depending on the regulatory climate."
A spokeswoman for Calgary-based CP declined
to comment on specific talks with Union Pacific, but said "should
the merger go through, CP would look at all its options, and they
range from strategic alliances, with shared technology and marketing,
through to a full-scale merger."
A Union Pacific spokesman said there are "no
active merger discussions going on at this time," but said:
"We have said that if Burlington Northern and CN were to
be allowed to merge, we would expect to see a wave of other mergers
resulting from that union. Obviously, at that point, we weigh
all our options."
Any deal between CP and Union Pacific would
be driven by a series of mergers that have consolidated North
American railways in the past decade. CP Rail now ranks among
the smallest major players. It has 24,100 kilometres of track
in a network that extends from Montreal to Vancouver and into
the U.S. Midwest and Northeast.
Union Pacific's rail network extends for 54,200
kilometres through the central and western United States.
Rival CN offers clients a superior shipping
network, with 35,400 kilometres of steel that reach from sea to
sea in Canada, and south to the Gulf of Mexico. The proposed merger
with Burlington Northern would add another 88,500 kilometres of
track, most of it in the western United States, and makes CN the
continent's largest railway.
A merger between CP Rail and Union Pacific
would have to be blessed by federal regulators on both sides of
the border.
CP stock has performed poorly over the past
two years and Mr. O'Brien has come under intense pressure from
his institutional shareholders to make more of his company's assets.
That pressure increased in the wake of the CN merger with Burlington
Northern, and after transactions such as BCE Inc.'s spinoff of
Nortel Networks Corp. and Quebecor Inc.'s sale of Donohue Inc.
were proposed, in part, to eliminate holding company discounts
in those stocks.
CP shares closed yesterday at $27.95, up 90
cents on the Toronto Stock Exchange. After rallying two years
ago to $42, the stock has slipped back to levels seen in the mid-1990s.
Bunting Warburg's Mr. David estimates that
CP's underlying assets are worth $51 a share, which means the
stock is trading at a hefty 47-per-cent discount to its underlying
value. Newcrest's Mr. Williams estimates the discount is even
larger, with the stock trading at just 53 per cent of CP's asset
value.
CP Rail's assets are worth $7-billion, according
to the Bunting Warburg report, which means the division accounts
for 40 per cent of the conglomerate's total assets.
CP also has a $5.6-billion stake in PanCanadian
Petroleum Ltd., a shipping division with $1.8-billion in assets,
a hotel chain that has $1.9-billion in properties and Fording
Coal Ltd., with assets worth $1-billion.
A tax-efficient spinoff of CP Rail, followed
by an alliance or merger with Union Pacific, would help satisfy
CP's long-suffering shareholders, according to analysts. There
is also speculation that CP will hand its stake in PanCanadian
Petroleum over to shareholders in the form of a special dividend.
Copyright 1999 The Globe and Mail
The BNSF/CN Merger
From: JPaulB1@aol.com
My response to the suggestion of CPR making a " knee-jerk
"merger
with U.P. CSX or N.S.
I can't help but think about the sometimes
painful, even, scary, approach
that CP has taken in recent years, -to shed the fat- to become
a lean, mean,
machine, and I believe proudly, that is where we are. To imagine
going
totally against that philosophy, now, just because of mega-merger
frenzy, I
think would definitely be 'kneejerk'. Besides, I don't think CPR
fits into a
'merger' situation as easily as a purely railway based corporation.
I
know, all of them have peripheral interests beyond rail transport
service,
but, none that I know of have seriously considered abandoning
the rail
transport portion of the portfolio.
I have been led to believe, Cp Limited has toyed with the idea,
from time to
time.
That to me, says that CPL would be more approachable for an outright
purchase offer for its railroad, than a merger. Not all shareholders
would
agree CP could be better without its railroad, which is at least
a proven
enterprise, that adds to the diversity needed for the great confidence
it
enjoys today.
So what does that leave? The kinds of alliances that have been
tricky to negotiate, recently, are now going to be a whole lot
easier, IF this merger between BN and CN, goes ahead.
And why wouldn't that be the way to face this clumsy giant, especially
if it intends
to starve out the competition by attrition, and feeding off its
own fat
(assets to survive). You've got CSX and NS, both in similar stages
of
commitment to transition and probably not receptive to a merger
with UP
unless frightened in to it, and UP itself trying to climb out
of the last
hole after stealing SP away from BN. Don't really think they're
up for
another round. I personally think they will all be more receptive
to
'alliances' than to 'mergers'. Nope, Lean, mean and cunning could
be the way
to go here, remember sometimes, the bigger they get, the harder
they fall.
Just my knee-jerk opinion.
Paul Bellis
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
More Expert Analysis:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
This so called merger between CN/BNSF-Tellier
acts like the Pope, the
spokesman for all railways. I don't think he knows the difference
between an RS-18 or a SD-40. This makes me boil when people like
him
thinks he knows it all. I have been around railroads long before
he was
thought of -or born.
Don't kid yourself, this is the "demise
of CN"-BNSF will run the show.
At least CP is sitting back watching all the developments of all
these
mergers. The head of CN will be gone, and BNSF management will
be in the
drivers seat.
CN since 1923 has been bailed out to the tune of over $98 billion-that,s
billion until its privatization , yes at the expense of the Canadian
taxpayor. CN spent money they never had, just like Air Canada/TCA
since
1937 up to privatization. Air Canada when privatized received
over $800
million from Ottawa as a going away present. Took some of this
money to
weaken Canadian Airlines especially on domestic routes offering
discount
fares. The airlines bills were paid by Ottawa, same as CN. Canadian
National spent money it never had-send the bills to Ottawa. At
one time
in the 1990's CN ran out of cash-missed one of their pay rolls,
some
received their cheques a week late. Like Air Canada, CN received
a going
away present when it went private-heaven knows how much, only
CN
management knows.
I can see through it all, BNSF wanted to takeover
Illinois Central, but
their bid was turned down. It looks like CN done BNSF's work by
purchasing ICRR. Was it all worth it, as BNSF serves New Orleans
and the
back room deals.
As I said BNSF will run the show. Canadian's
sat on the fence and never
invested in Cn, while others outside Canada became shareholders.
I can see CP/Union Pacific/Norfolk Southern/maybe
CSX coming together in
an arrangement. Between CPR and Norfolk Southern, both have invested
in
some joint projects. CPR has a very close relationship with Union
Pacific.
CPR/Union Pacific are the only two-long standing
privately owned
railroad systems to survive going back to the 1870-1880's period
and
still here going into the 21st Century-I'm speaking of Trans-Continental
railways.
To this day CN I believe is still getting help
and assistance from the
Federal government. CPR had to look after itself.
CN is still very political. Just this past week to prop up Air
Canada's
cash reserve-the Caissie Populaire a Quebec financial institution-part
of the Quebec Government gave Air Canada $150 million to prop
up the
airline's cash reserves-with some monies going towards buying
out
Canadian Airlines. TCA/Air Canada when a Government airline-and
to this
day supposed to be private, what it all for themselves-and will
try to
crush competitition. Soon we will be back to pre-1959 days, when
Canadian Pacific Airlines won the right to offer competitive air
transportation on the Trans-Continental route, prior to that no
choice
and service run to suit themselves.
Don Scott-Coquitlam, B.C.
Market
takes a long, hard look at CP plan
>
> James Ferrabee
> The Gazette
>
> MONTREAL - In the past 18 months, Canadian Pacific Ltd. has
been hit by
low
> commodity prices and dragged down by its railway, which is
pulling up
short next
> to its major competitor, Canadian National Railway Co.
>
> As a result, the stock (CP/TSE) has languished in the high
$20s and low
$30s
> while CN's stock (CNR/TSE) has hit the fast track, trading
recently
around $95.
>
> CP's market capitalization is a robust $10.4-billion. It
is the country's
most
> diverse conglomerate. Because of the diversity of its holdings,
it is
often said
> that when you buy CP stock, you buy a piece of Canada.
>
> For example, it is in two businesses -- in a big way -- that
personify
Canada:
> the railway and oil and gas. And CP Railway Co. and Pan Canadian
Petroleum Ltd.
> together represent between 75% and 80% of the company. CP
is also
building
> significant stakes in the worldwide hotel and shipping business
and it
owns a
> coal company.
>
> No wonder questions are raised about whether it owns too
many companies.
Many
> analysts have suggested it sell the railway or its oil and
gas interests
to
> narrow its focus. The idea of a sell-off seemed to be attractive
to the
company
> a year ago. But in a meeting last month with analysts, there
was no talk
of
> selling assets, according to Michele Weise of Canaccord Capital.
>
> "The biggest news to come out of that meeting was that
CP clearly has
opted to
> build shareholder value by growing its businesses,"
the Toronto-based
analyst
> said last week. There was also heavy emphasis on turning
around the
railway and
> shipping businesses, she
> said.
>
> "People are looking very closely at the performance
of CP Rail,
especially since
> [it has] spent about $2-billion in the last few years in
upgrading
equipment and
> other improvements. They clearly want the company to create
value from
these
> improvements."
>
> The rail system, which is concentrated in the west, relies
heavily on
bulk
> cargo, but grain and coal shipments are weak. If those pick
up and when
the
> savings from the newly announced down sizing of 1,900 employees
kick in,
CP
> Rail's earnings might again sparkle. In the second quarter,
CP Rail's
earnings
> slipped to $75-million from $90-million in the corresponding
period last
year,
> even though over-all earnings per share were up to 59¢
(before a special
charge)
> from 51¢ in the year-earlier period.
>
> While Pan Canadian has provided a lift to CP shares because
oil prices
have
> jumped above $20 in recent months, most analysts are focusing
on the rail
> company and its future. And although the western rail franchise
is
strong, one
> analyst questions whether CP Rail's franchise in Eastern
Canada will ever
add
> value for CP shareholders.
>
> "CP Ltd. has given CP Rail a new lease on life by allocating
significant
sums of
> capital for its physical recapitalization program,"
said Robert Reid of
CT
> Securities in a recent report.
>
> "But this was a one-time event and the entire CP Rail
franchise will now
have to
> compete for capital relative to other railroads. This is
where we
question the
> longer sustainability of the railroad as it is currently
configured."
>
> Compared with CN, CP Rail has taken a beating over the past
year,
analysts
> concur. But, said Mr. Reid, who is based in Toronto, its
performance is
neither
> as bad as its detractors say, nor as good as cheerleaders,
who applaud
its
> latest cost-cutting efforts, infer.
>
> "Simply put, the company has been reactive and has fallen
farther behind
than
> [it] should have. But the CP Rail franchise is much stronger
than some
would
> give it credit for and the actions the company has taken
to turn itself
around
> are the right moves, if somewhat belated," he said.
>
> Robert Fay of Nesbitt Burns said in a recent report that
there is
disappointment
> about issues to do with the railway, including the possibility
of more
> co-operation between CP and CN.
>
> "CP Rail's operating performance has been slipping over
the past few
quarters,
> which underscores its heavier reliance on bulk commodities,
but this
downturn
> was seen some time ago. We also believe there were expectations
that new
> initiatives would be announced with CN Railway. We believe
there are
> opportunities for initiatives that could benefit both carriers
without
affecting
> their competitive positions."
>
> Mr. Fay is not as keen on the stock as others, and he rates
it a "4," one
below
> Nesbitt Burns' top rating, with a $40 target over the next
12 months. The
stock,
> which trades in a 52-week range of $40.65 to $25.95, closed
in Toronto
yesterday
> at $35.10, down 50¢.
>
> Mr. Reid, on the other hand, believes the groundwork has
been laid for an
> earnings recovery in 2000. "Although second-quarter
rail results were
> disappointing, the major cost-reduction program announced
by CP Rail and
CP
> Ships totalling $500-million over approximately three years
should result
in
> significant improvement in results going into 2000 and 2001,"
he said.
>
> He rates CP a "buy," with a target price much higher
than Mr. Fay's, at
$50.
>
> Ms. Weise of Canaccord maintains her "accumulate"
rating, three from the
top
> rating, with a 12-month target of $42.50. But in the longer
term -- that
is,
> over the next 18 to 24 months -- she expects CP shares to
hit $48 to $50,
> provided the plans announced last
> month are carried through.
>
> Last week, Joseph Leinwand of RBC Dominion Securities joined
the
reassessment
> train by raising his rating of CP from "3 (neutral)"
to "2 (outperform)"
and his
> target price from $41.50 to $43.50.
>
> Clearly, CP is making moves that intrigue the investment
community after
a year
> in which the company was given a rough ride by analysts.
Just as clearly,
the
> rise in the price of oil and gas has much to do with the
reappraisal, but
they
> are also taking a cautious second look at CP Rail. In short,
the future
looks
> positive.
>
> CANADIAN PACIFIC LTD.
>
> CEO: David O'Brien
>
> Ticker: CP
>
> Listed: Toronto, Montreal, Alberta and Vancouver stock exchanges
>
> Head office: 1800 Bankers Hall East, 855 Second St S.W.,
Calgary, Alberta
T2P
> 4Z5
>
> Telephone: (403) 218-8000
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