Stockwatch – Canadian Pacific Railway Limited (TSE:CP, Mkt cap 36.35B, P/E 36.28, Div/yield 0.35/0.66, EPS 5.84, Shares 171.46M) has approached CSX Corporation (NYSE:CSX, Mkt cap 33.39B, P/E 18.22, Div/yield 0.16/1.92, EPS 1.83, Shares 999.57M) regarding a merger deal that would see two of North America’s largest railroad operators unite.
People briefed on the matter say the overture has been rebuffed, but there remains some optimism that a deal could yet be done.
Market Watch says the proposed deal attests to the booming outlook of the industry, as rail becomes fundamental to moving North America’s new abundance of oil.
This energy boom has resulted in North American railroads hauling millions of barrels of crude oil, with the railroad industry benefiting from oil fields being developed without pipelines able to be built to transport it.
According to federal data, the half-dozen major railroads operating in the United States generated $2.15 billion hauling crude in 2013, up from $25.8 million in 2008.
A CP-CSX deal would give rise to an industry giant with a combined market value of about $62 billion. However, there is some concern in the industry that mergers could intensify congestion delays and heighten costs.
“I think it’s a common belief that now would not be a good time,” a top executive at a major railroad told the Wall Street Journal, “because of the regulatory change that would accompany it and the upheaval it would cause the industry.”
Those in favour of railroad consolidation say, however, that although rail network is not “boundless in infrastructure,” it does have the potential to be made to work more efficiently.
Both CP and CSX have similar market values in the $36-billion range. Nevertheless, CSX’s annual sales of US-$12-billion and work force of 31,000 are double those of CP.
Canadian Pacific’s net income grew by 47.56%, year over year, to $2.11 per share during the second quarter, as reported in July. This was among the strongest growth seen by any company in this industry.
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