Grainswest - Fall 2021

Fall 2021 Grains West 36 As well, both Cargill and Viterra have announced similar plans for Regina, SK. “The new plants might shift the focus for canola growers from grain to meal and oil,” said Toma. “If meal and oil are moving into value-added markets in North America that line to Mexico will really help access additional markets in the United States.” One concern around the merger is the prospect of collateral damage as one railway absorbs another. “From a shipper’s perspective, I am hearing from some worried companies that fear they will be consumed by the integration,” said Hemmes. He also noted problems can occur when two such sizable operations combine. While the focus shifts to making the integration work, this draws attention away from the operation of an effective business enterprise. “I believe there is some legitimacy to those concerns, as we saw some service disruptions when CN took over Wisconsin Central Railway and BC Rail,” said Hemmes. “In any case like this, it takes time to get your feet back on the ground.” THE BIG DEAL As the fight for KCS evolved, even industry experts were reluctant to predict its outcome. CP maintained it would create a secondary contiguous network, whereas an existing CN line runs parallel to KCS in some areas. As a result, the CP offer may have been viewed as having less negative impact on competition. “For its part, CP contended that, given the large distance between its line and KCS, there would be little or no effect on the competitive nature of the rail industry,” said Hemmes. To access U.S. markets, CP crosses the border at Emerson, MB, and Portal, SK, while CN crosses at Emerson and Fort Francis, ON. Both continue on to Chicago where CP runs to Kansas City and CN to Memphis, TN and beyond. The CN and KCS lines run roughly parallel from Springfield, IL to NewOrleans, and this was the contentious part of the CN proposal. CN had also pledged to take other measures to avoid upset in the competitive environment that might be objected to by the U.S. Surface Transportation Board (STB). “I think CP felt there was a fairly good chance that the STB wouldn’t allow CN to take over KCS, so CP didn’t have to offer as much per share as CN,” said Hemmes. “There was a lot of ego and some gamesmanship in that position, as well as risk-taking on CP’s part.” Both Canadian railways lobbied hard, submitted numerous letters to the STB and asked shippers to lend support to their respective positions. “I haven’t seen anything like this in the rail industry since the merger of Burlington Northern and Santa Fe Pacific Corporation in 1995,” said Hemmes. “The sheer scale of the proposals made it very interesting, as this may be the last of the major mergers in this business. Over the decades, we have gone from 20 or so railways in North America down to six, and now trying to make it five. I imagine both the American and Canadian governments will say, ‘No more.’” After a number of twists and turns, the takeover battle concluded. On Sept. 15, CP announced a deal had been reached to acquire KCS for approximately US$31 billion. This includes the assumption of US$8.5 billion in KCS debt. It is the FEATURE

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