The rail industry and its many observers have been absorbed by the Canadian Pacific Railway’s pursuit of Norfolk Southern. Without recounting the entire story, the whole scenario (minus the regulatory stew that would be an integral part of any Class I merger) is a classic “boy meets girl” scenario with a twist.
Succinctly, CP’s CEO, E. Hunter Harrison, made an offer for NS. NS rebuffed the CP offer. Here’s the twist: After the initial NS rebuff, CP has since taken to the court of public opinion to try to sway the mélange of interested parties (shippers, investors, regulators) that a transcontinental railroad would be in everyone’s best interest. The strategy of pursuing the investors rather than NS’s management is akin to the “boy” going to the parents of the “girl” to explain why he really is the best person for their daughter.
The merger plan seems to have merit. Certainly, anything that would lay claim to decreasing congestion in and around Chicago and for keeping freight on the rails for longer periods of time (over trucks) has merit, but it also has real-life hurdles that would need to be dealt with prior to acceptance by the stakeholders involved in the rail economy. However, what is striking is how quickly this process has gone from a private matter between NS and CP to an open airing of grievances, and in the Festivus tradition of what seems like boardroom-style feats of strength. (If you don’t recognize the term, try Wikipedia or Google Seinfeld, Season Nine Episode Ten, “The Strike.”)
Hunter Harrison is a tremendous executive and leader in the railroad industry. Many industry observers describe these events as “Hunter being Hunter” a la Manny Ramirez, whose “Manny being Manny” antics entertained a generation of baseball fans. Part of the shrewdness of this series of events is the use of the bully pulpit to change how the circumstances are being perceived and create focal points that might distract away from the negatives associated with the terms of the deal being presented, such as the offering of a low premium to current share value or how the merger of a U.S. and Canadian company might create some anxiety about the selection of a corporate headquarters and the potential loss of Canadian or U.S. jobs.
It is striking that the rules governing public companies encourage this strategy. Outside of the view of the public eye, the world often operates in more pragmatic fashion. In the multi-billion-dollar world of equipment finance transactions, the buying and selling of assets and leases relies as much on price and terms and conditions of sale as upon the reputations of the professionals involved and the discretion they exercise in closing deals.
While the price is the price, like with the CP and the NS, it’s the details that matter. Investors that can’t close on time or that cannot stand behind their offers on equipment are identified as such. Those reputations stick with those investors for a long time. Instead of a chuckle and a good ’ol “Manny being Manny” off-hand comment, unsportsmanlike conduct in the buying, selling and leasing of assets may keep companies from doing business for years. An investor or transactional professional that adopts a combative approach and writes letters to corporate presidents and boards of directors may find themselves wondering where all the deals have gone and why their bids are falling short in the hunt for new business.
Hunter Harrison is prepared to live with the consequences, positive or negative. His “go big or go home” approach has led to an illustrious career and his bonus pool is probably at max capacity—win or lose. The same is true for the primary NS stakeholders rejecting the CP proposal. On the equipment finance transaction side, closings generate bonuses and increase personal earnings. No one wants to be on the receiving end of a busted deal that someone is counting on to hit a sales target or a corporate budget goal. That may quickly convert an opportunity from one that is about business to one that is personal.
The most successful people in finance are those who deliver on their promises on price, on terms and conditions and on end results. Those are the people that get “the call” when someone needs a deal to close quickly and, most important, fairly. Repeat business pays career long dividends. Maybe at the age of 71, Hunter Harrison is not worried about the next deal, preferring instead to let this Class I merger be the coup de grace of a great career. Great prime time viewing in either case, this is truly a Festivus for the rest of us.