In a Dec. 10, 2015 interview with Bloomberg TV Canada, BNSF Executive Chairman Matt Rose stated that his company has spoken to both eastern Class I railroads about potential merger activity. “We have long believed BNSF would be involved in the industry potentially consolidating from seven carriers to four,” says Cowen & Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “We continue to believe Norfolk Southern shares will outperform and that investors will start to look at eastern rival CSX.”
Warren Buffet, the “Oracle of Omaha,” whose Berkshire Hathaway owns BNSF outright, “is paying attention,” notes Seidl. “Buffet has long been enamored with the railroad sector and has long been our pick to participate in the final round of consolidation. In the interview yesterday, Matt Rose stated that his company has had discussions with both CSX and NS and is paying close attention to the CP/NS saga.”
“If CP’s overtures toward NS come to fruition, we believe that other railroads will be forced to scramble to match the scale and product offerings of their newly formed transcontinental peer,” says Seidl. “This could push the industry from seven Class I’s (BNSF, CN, CP, CSX, Kansas City Southern, NS, Union Pacific) to four. Conversely, the comments made by Rose may be initially intended to give notice to the Surface Transportation Board that the next merger will lead the industry into an ‘end game’ scenario.”
“Consolidation talk is far from over, and targets could rally,” observes Seidl. “We continue to believe that CP has more to offer NS, and now it appears that others may be interested as well. NS, CSX, and KCS could rally in the coming weeks due to investor speculation on further rail mergers and acquisition activity, which comes at a time when investors would otherwise be focused on the lackluster carload volumes being put up by the carriers.”
Click HERE to access Bloomberg TV Canada's intertview with Matt Rose.