Posts Tagged ‘Keith Creel’

CPKC to Retain CP Beaver, Shield

September 21, 2021

Canadian Pacific CEO Keith Creel said last week that the CP Beaver will figure prominently in the identity of Canadian Pacific Kansas City, but would not reveal details of what the locomotive livery will be.

Creel said during an interview with Trains magazine that he has some ideas about how to protect the identities of CP and its merger partner Kansas City Southern.

“We don’t want to get ahead of ourselves or send the wrong signal to the STB (Surface Transportation Board),” he said. “That being said, the answer would be I’ve got some ideas. We’re going to try to protect both companies’ proud histories. That matters.”

Upon becoming CP’s CEO in 2013, Creel brought back the iconic CP beaver and shield.

“Obviously the beaver is near and dear to our hearts,” Creel said. “The beaver will be part of that when it’s finalized; there’s no doubt in my mind.

“So it won’t be a huge retooling of our logo. It will be an enhancement that will honor the KCS team and I think we’ll make them proud to be a part of it. When it comes to locomotives, we haven’t gotten that far yet. That’s something when the time’s appropriate we’ll take a look at.”

Creel also said during the interview that once the merger is completed CPKC will put its 4-6-4 steam locomotive No. 2816 on a business train that will conduct a nearly 3,800-mile tour from Calgary to Mexico City.

Known as the Empress, the H1B Hudson was built in 1930 by Montreal Locomotive Works. Restored in 2001, it last operated in main line service in 2013.

As for the CPKC name, Creel said he chose that name as a way to honor the employees of both railroads.

“To me it’s about honoring our employees and honoring our histories,” he said adding that he understand some have been critical of the name.

In looking ahead to how CPKC will operate, Creel said traffic moving from KCS to Detroit and points in eastern Canada will continue to operate via Chicago.

Once that traffic arrives in Chicago it will move east on trackage rights on Norfolk Southern to Detroit via the NS Chicago Line to Butler, Indiana, and then to Detroit over the former Wabash mainline.

Creel said he envisions traffic growing to the point that a new tunnel will need to be built between Detroit and Windsor, Ontario, to handle double-stacked container trains.

CP owns the current Detroit River tunnel between those points but it cannot handle double-stacks.

Therefore the double-stacked traffic now moves and will continue to move for now via haulage rights on CSX between Chicago and Buffalo, New York, via Cleveland.

CP-KCS Outline Merger Timeline, New Name

September 17, 2021

Canadian Pacific and Kansas City Southern said on Thursday that shareholders of their respective companies will vote on their proposed merger in December.

The two railroads expect regulatory authorities in Mexico to review the merger over the next two to four months.

A merger application will be filed with the U.S. Surface Transportation Board in October and railroad officials are hoping to gain approval by October or November 2022.

The merged company is expected to be named Canadian Pacific Kansas City. It will have U.S. headquarters in Kansas City, but its primary headquarters will be in Calgary.

KCS is expected to be placed into a voting trust in the first quarter of 2022 with former KCS CEO David Starling serving as trustee.

The shareholders of KCS will receive $300 per share in a combination of cash and CP stock, which represents a 34 percent premium to the value of KCS stock price before the CP-KCS merger initially was announced last March. KCS shareholders will own 28 percent of CPKC.

CPKC will be the smallest North American Class 1 system by revenue.

Rail officials envision CPKC having $820 million in annual revenue growth from new traffic opportunities and $180 million in cost and efficiency savings.

KCS CEO Patrick Ottensmeyer said his CP counterpart Keith Creel suggested putting Kansas City into the new railroad’s name and making Kansas City the system’s U.S. headquarters.

Creel will serve as CEO of CPKC and continue to be based in Calgary.

He expects some shippers and Class I railroads will ask the STB for concessions as part of the merger review process but doesn’t expect there to be as many as have been granted in previous Class I mergers because the CP-KCS combination does not involve significant route overlap or a reduction in railroad options for some shippers.

Creel also said CPKC will keep all existing gateways and interchanges open as it seeks traffic growth, but added, “I’m not here to go to war with UP (Union Pacific) or BNSF or CN (Canadian National) or CSX or NS (Norfolk Southern).”

KCS to Consider Merger Options

September 2, 2021

Although Kansas City Southern still plans to hold a meeting of shareholders on Friday, it will adjourn the meeting to buy time to reconsider its options in the wake of a decision by the U.S. Surface Transportation Board of Canadian National’s bid to place KCS into a voting trust while a merger of the two Class 1 railroads is reviewed by regulators.

In a statement, KCS expressed disappointment over the STB decision while also acknowledging that Canadian Pacific has made a second offer to acquire KCS. The statement said KCS will consider CP’s latest acquisition offer in due course.

CP issued its own statement saying its Aug. 10 offer to buy KCS for $31 billion remains on the table.

In a conference call Wednesday morning with investors, CP CEO Keith Creel said CP has a regulatory path to approval of a merger with KCS that CN lacks.

Creel pointed to language in the STB decision contending CN overlaps KCS whereas a CP-KCS combination would be an end-to-end merger.

He also noted that the STB has already approved CP’s proposal to put KCS in a voting trust while a CP-KCS merger is reviewed under pre-2001 rules that are less stringent than those that would be applied to the review of a CN-KCS combination.

However, Creel said KCS only has until Sept. 12 to accept CP’s offer.

“Our appetite and willingness to keep that offer on the table forever does not exist,” Creel said.

If KCS accepts CP’s latest offer, then CP said it will file a merger application with the STB by late September.

A day after the STB ruled against CN’s proposal to place KCS in a voting trust, industry analysts continued to maintain that the ruling forecloses approval of a CN-KCS combination.

They pointed to a passage deep in the STB decision that suggested the agency doesn’t expect to see a transcontinental merger under its current merger review rules.

“Neither Applicants nor the Board can perfectly predict future strategic responses to a CN-KCS transaction. However, a simple geographic analysis of the rail network would suggest that a carrier in CP’s position, i.e., one that would be the smallest carrier by far after a CN-KCS combination, might need to look for potential strategic alliances, which might in turn trigger yet more strategic responses by other rail carriers,” the board wrote.

“Approval of a CN-KCS voting trust could speed up downstream consolidation movements prior to the Board even having had an opportunity to assess them based on the record yet to be developed in this proceeding.”

An analysis on the website of Trains magazine concluded that the STB fears that those “downstream consolidations” could lead to two railroad systems covering the United States and Canada.

If CP and KCS eventually merge, the analysis continued, that would result in a near perfect balance of two railroads in the East (CSX and Norfolk Southern), two in the West (Union Pacific and BNSF) and two Canadian systems that reach the Gulf of Mexico.

Yet the Trains analysis raised the prospect that such a state of affairs would also fix the advantage that truckers have in being able to move freight anywhere in North America whereas railroads can only move it to the ends of their systems before handing it off to another railroad.

“If the STB wanted to create a level playing field between trucks and trains, it would figure out a way to preserve rail-to-rail competition while allowing Class I mergers,” wrote Trains writer Bill Stephens.

He noted that Canada has had two transcontinental systems for a century and that could work in the United States if regulators would allow it.

Although railroads handle 40 percent of ton miles they earn less than $100 billion of the revenue of the $1.4 trillion U.S. surface transportation and logistics market.

If trucking companies continue to divert freight from rails to highways they might become a threat to the financial well being of the railroad industry.

CP Asks KCS Board to Spurn CN Bid

May 21, 2021

Canadian Pacific has asked the board of directors of Kansas City Southern to reverse course and reject a bid by Canadian National to buy the company.

CP said in a letter to board members that CN’s merger proposal “is illusory and simply an attempt to dismantle the unique, pro-competitive deal that CP and KCS” agreed to in late March.

The letter, signed by CP CEO Keith Creel, said CP respects the KCS board’s decision to determine CN’s $33.6 billion offer was superior to the $29 billion CP offer.

However, CP argued the U.S. Surface Transportation Board is likely to reject CN’s proposal to use a voting trust of KCS stock given that allowing the trust would not be in the public interest.

Creel also said after KCS received a revised CN proposal, that a number of things have occurred that should lead the KCS board to conclude that CN’s proposal is not “superior” as defined in the CP-KCS merger agreement.

“Respectfully, we feel it would be destructive to our mutual interests to engage in a bidding war in reaction to CN’s illusory offer, particularly where our existing CP-KCS Merger Agreement provides KCS’s shareholders with a significant premium,” Creel wrote.

Creel Warns CP Could be Merger Target

May 21, 2021

Canadian Pacific CEO Keith Creel repeated this week his assertion that if his company fails to buy Kansas City Southern that will make CP a target for acquisition by another North American Class I railroad.

Speaking on Thursday to investors on a webcast, Creel said the bid by Canadian National to buy KCS “is a direct threat to the North American rail network. And, more specifically, the U.S. rail network.”

Creel said U.S. regulators will take note of that.

CN has proposed to buy KCS in a $33.6 billion stock and cash transaction. It has asked the U.S. Surface Transportation Board to allow it to place KCS into a voting trust while the review process of the merger plays out.

CP earlier sought to buy KCS for $29 billion, an offer the KCS board had accepted at one point. Then CN made a counteroffer and last week the KCS board deemed the CN bid to be “superior” to the CP offer.

Creel has expressed concern that if KCS and CN merge that would leave CP as the smallest Class 1 system in North America and it would lack the scale and reach of the other systems.

 “CP is a strong franchise, with or without the KCS transaction. Our story of lowest cost, safest, best service, best volume growth in the industry in three years . . . to me truly defines what best is,” Creel said.

Creel contended CP would be an attractive merger partner because of its size and performance record.

 “If you’re looking for a partner, what would you want to partner with? And we will explore our strategic opportunities.”

Some railroad industry analysts have speculated that if CN and KCS merge as proposed, that could set off the long expected final round of Class 1 railroad mergers in North America.

Other analysts, though, have said the CN-KCS merger would not necessarily upset the balance of Class 1 systems in North America of two systems in Canada, two in the U.S. West and two in the U.S. East.

CP is seen as unlikely to seek to buy another Class 1 system and is more likely to become the target of an acquisition.

When the late E. Hunter Harrison was CEO of CP, he unsuccessfully sought to merge with Norfolk Southern in 2015 and had talks about merging with CSX.

Creel said this week a merger involving CP and another Class I would have to be based on growth.

“The CSX and the NS, they’re doing a great job creating efficiencies and service offerings and capacity with their networks,” Creel said. “So it’s not an operating play. It would have to be a revenue, pro-service, pro-competition play.”

Industry analyst Anthony B. Hatch told Trains magazine it is unlikely CSX, NS, Union Pacific or BNSF would initiate merger talks with CP or any other Class I because they are more interested in stability than growing in size.

However, Hatch says, one of the U.S. Class 1 systems might be interested in having Creel as a potential successor to one of its chief executives.

Hatch sees Creel’s merger talk as a political game designed to scare shippers, members of Congress, and federal regulators into fearing a final round of rail mergers.

CP Won’t Get in Bidding War for KCS

April 30, 2021

Canadian Pacific CEO Keith Creel said this week that his company won’t engage in a bidding way to acquire Kansas City Southern.

Speaking to the North East Association of Rail Shippers, Creel said Canadian National has more resourcess to finance a more expensive deal.

He was referring to a bid of $33.7 billion that CN has made to buy KCS whereas CP has offered $29 billion

If CP loses out on acquiring KCS, Creel said that would leave CP as the smallest Class I railroad and force it to eventually would have to find a merger partner.

“We don’t want a bidding war and it’s not something we’ll participate in. And ultimately, it’s a war that we would not win,” Creel said.

Ciurrently, KCS is North America’s smallest Class 1 system.

Creel did not rule out cooperating with CN and KCS.

“Listen, anything’s possible. We’re reasonable people at Canadian Pacific,” Creel said. “Should that happen, we’ll do our best to represent our customers’ interest. Is it possible in some instances? Yes. Is it probable? I would suggest probably not.”

In the meantime, Creel said shippers should tell the U.S. Surface Transportation Board their concerns about how a CN-KCS combination would “snuff out” rail competition at a “multitude” of locations and eliminate CP’s friendly connection to KCS in Kansas City.

CN contends its acquisition of KCS will boost rail competition and it plans to keep all KCS gateways open.

CP has told federal regulators there are more than 340 shipper facilities on a combined CN-KCS system that are currently served by both railroads.

Many of these are concentrated in a 65-mile stretch in Louisiana between Baton Rouge and New Orleans.

CN has suggested it will address this issue and that might include selling the KCS line in the region to another railroad.

“When you’re already talking about divestiture from the very beginning to provide a remedy to enable a deal, I would suggest it’s a bit deeper. I would suggest that the customers care,” Creel said.

The KCS board of directors has already accepted CP’s offer and it now considering the CN offer.

If KCS changes its mind and accepts the CN offer, CP will have five days to respond. Creel said CP would likely give up trying to acquire KCS and keep a $700 million breakup fee from KCS.

By comparison, KCS’s total revenue for the first quarter was $706 million.

In the short term, Creel expects CN to be hindered by the “exorbitant” price it will pay for KCS, suggesting it could increase CN’s operating ratio as high as 75 percent.

“And then you get to a point where I can compete in markets, and share that cost advantage with my customers so that they can continue to grow whereas CN cannot,” Creel said.

However, Creek said CP and its customers will eventually be at a disadvantage from CN’s far larger system, forcing it to seek a merger partner.

CP-KCS Wants Merger Reviewed Within 10 Months

March 24, 2021

Canadian Pacific and Kansas City Southern want U.S. regulators to review their planned merger within a 10 month time frame that will begin in late June.

The two Class 1 railroads said this week they expect to file a merger application with the Surface Transportation Board around June 28.

CP acknowledged last weekend its plans to buy the smaller KCS and thus create the first Class 1 railroad to United States, Canada and Mexico.

In a filing with the STB, the CP and KCS said they are proposing that regulators follow the blueprint for review that was followed for the last Class 1 merger, the 1999 acquisition by Canadian National of the Illinois Central.

In their filing the two smallest North American Class 1 systems said they propose to offer new single-line service linking Canada and the U.S. Northeast and Upper Midwest with the Gulf Coast, Texas, and Mexico.

The two railroads noted that their merger will be similar to that of CN and IC in that it will be an end-to-end merger with no overlapping routes.

The CP-KCS filing also suggested that regulators could complete their review in six months.

CP CEO Keith Creel said he expects the CP-KCS combination to be approved by regulators because the deal is pro-competitive.

In the meantime, other Class 1 systems have said they are still studying the proposed merger.

“We are assessing the proposed acquisition now to ensure we have a thorough understanding of the potential impacts,” said Norfolk Southern spokesman Jeff DeGraff.

“We will advocate diligently for the interests of our customers and shareholders as the transaction moves through the regulatory review process, with a particular emphasis on protecting the current and strategic value of our Meridian Speedway joint venture with Kansas City Southern.”

The latter comment was a reference to a 320-mile joint venture between Meridian, Mississippi, and Shreveport, Louisiana, in which NS holds 30 percent while KCS has a 70 percent stake.

The Meridian Speedway is the the shortest route between the Southeast and Southwest.

BNSF and Union Pacific indicated they, too, are reviewing the deal and declined further comment.

Railroads May Benefit From Biden Pipeline Opposition

February 3, 2021

North American railroads might benefit from plans by the Biden administration to halt or curtail construction of crude oil pipelines.

Canadian National CEO Jean-Jacques Ruest said Biden’s actions, included cancelling a permit for the Keystone XL pipeline that was being built from Canada into the United States will have a positive effect on railroads.

The Keystone pipeline is designed to carry oil sands crude from Canada to refineries in the United States. 

Ruest said it would have been a few years before the Keystone pipe had been completed.

“So I think the positive impact on us might be a few years down the line,” Ruest said.

Canadian Pacific CEO Keith Creel said the actions being taken by the Biden administration in reviewing pipelines bodes well for railroads.

However both CEOs said that conventional crude oil by rail shipments will eventually shift to pipelines once capacity matches demand. 

Some crude oil cannot flow though pipelines and thus moves by rail.

In recent years the volume of crude moving by rail has diminished due to a collapse in energy prices.

Canadian authorities reported that between April and November last year Canadian crude-by-rail exports to the U.S. fell 70 percent.

Some existing pipelines and some in the building or planning stages carry Bakken crude oil from North Dakota.

If some of those projects are shut down that could net railroad more crude by rail business.

Pandemic Gave CP Opening to Buy Detroit River Tunnel

October 21, 2020

In a twist of fate, the COVID-19 pandemic gave Canadian Pacific an opening to take complete control of the Detroit River Rail Tunnel in a $312 million transaction that is awaiting regulatory approval.

CP executives said during an earnings call this week to announce third quarter financial numbers that gaining control of the tunnel is key to the railroad having more control over its destiny in competing for traffic in the corridor between Chicago and Eastern Canada, including the cities of Toronto and Montreal.

However, until the tunnel can be enlarged to accommodate all double-stacked container trains, CP will continue to rely on CSX to move that traffic between Chicago and Buffalo, New York.

CP also must continue to use Norfolk Southern to move traffic between Chicago and Detroit because it does not have its own tracks between those cities as does Canadian National.

The tunnel between Detroit and Windsor, Ontario, was built by the Michigan Central in the early 20th century.

A strong financial position during an economic downturn prompted in part by the COVID-19 pandemic enabled CP to acquire the tunnel, CP CEO Keith Creek said during the earnings call.

He noted that CP during the 2008 Great Recession reduced its ownership stake in the tunnel from 50 percent to 16.5 percent in an effort to raise $110 million in cash.

But this around during an economic downturn CP was in a much stronger financial position.

The advantage of tunnel ownership, Creel said, will be avoiding the toll charges the railroad now pays to use the tunnel.

Those amount to more than $14 million annually Trains magazine reported this week.

The tolls are paid to majority tunnel owner Borealis Transportation Infrastructure Trust.

Borealis is a subsidiary of the Ontario public employee pension fund and decided to sell its stake in the tunnel earlier this year.

As a part owner of the tunnel, CP had a right of first refusal, which it is exercising.

 “It made compelling sense to buy this asset back,” Creel said, adding that owning the tunnel will reduce CP’s operating costs and therefore boost profit margins on the route.

CP and Canadian National at one time jointly owned the twin-bore tunnel after buying Conrail’s interest in the Canada Southern Railway in 1984.  CN sold its half of tunnel ownership to Borealis in 2001.

One of the tunnel tubes was enlarged in 1993 to handle auto racks and international double-stack containers but the clearance is not enough for double-stacked domestic containers.

CP now uses the tunnel for merchandise and automotive traffic.

CP CEO Sees Class 1 Mergers 10 Years Off

January 6, 2020

Mergers of North American Class 1 railroads are inevitable but unlikely to occur for another 10 years Canadian Pacific CEO Keith Creel predicted on Monday.

Speaking to the National Railroad Construction and Maintenance Association Conference, Creel said the adoption of the precision scheduled railroading operating model by most Class 1 railroads has delayed any movement toward consolidation.

Creel predicted mergers will come about as the industry responds to the need for more transportation.

“The need for transportation is going increase; it’s not going to decrease,” he said. “Eventually, to create more capacity — because nobody wants to build any more railroads; you can’t justify them and nobody wants you in their backyard — you’ve got to create capacity by eliminating handoffs and interchanges, and bigger, longer networks that are optimized.”

Had PSR not come along, Creel said, the move toward merger might happen five years from now.

But PSR created more capacity through scheduling and more efficient use of assets, he said.

Creel noted that regulatory hurdle to mergers are substantial and that any merger must be viewed as “pro-service and pro-competition” to win regulatory approval.

In defense of PSR, Creel described it as a long-term story.

“It’s about creating a well-run company that’s highly capital intensive that you can invest money back into, to sustain success long-term and to grow with,” Creel said.