Rail mergers could be 'destructive' to shareholder value - CSX CEO

By Nick Carey
CHICAGO, Jan 13 (Reuters) - No. 3 U.S. railroad CSX Corp
CSX.O does not see any compelling benefits stemming from
mergers of major railroads in North America and fears regulatory
burdens could be attached to the approval of deals that would
add to the cost of doing business, the railroad's top executive
said on Wednesday.
"The benefits seem somewhat unconvincing, I really think the
Class I railroads have great opportunities to create shareholder
value without mergers," chief executive Michael Ward told
Reuters by phone when asked about Canadian Pacific's CP.TO
unsolicited bid for No. 4 U.S. railroad Norfolk Southern Corp (N:NSC)
NSC.N . "I think mergers could actually be destructive of
shareholder value."
Ward said that CSX has met with representatives of other
major railroads in the presence of legal counsel. Those
representatives include Matt Rose, chairman of BNSF BNISF.UL ,
the No. 2 U.S. railroad which is owned by Warren Buffett's
Berkshire Hathaway (N:BRKa) Inc BRKa.N .
No. 1 U.S. railroad Union Pacific (N:UNP) Corp's UNP.N chief
executive Lance Fritz told Reuters on Wednesday he believes
major railroad mergers are not in the interest of the rail
industry or customers and is working behind the scenes to make
sure none take place.
By law, major U.S. railroads may only discuss topics that
affect the entire industry.
"We haven't had any new consensus come out of this," Ward
said. "To be honest we've had one or two discussions, but we
were all against mergers to begin with."
Canadian Pacific in mid-November disclosed its $28 billion
offer to buy Norfolk Southern.
Norfolk Southern has rejected the Canadian railroad's
advances, setting the stage for a possible proxy battle. Any
deal would face a tough review from rail regulator the Surface
Transportation Board, which would judge whether it was in the
public interest.
There are also questions about whether the voting trust
Canadian Pacific has proposed would pass muster.
"It's highly questionable whether (a deal) would pass the
aggressive scrutiny of the two high standards of public interest
and pre-approval control," Ward said.
CSX's CEO spoke to Reuters the day after the railroad posted
fourth-quarter results. The company saw freight volumes fall 6
percent in the quarter and Ward said the only bright spots at
the moment for 2016 are automotive and housing.
"The rest of the markets all have challenges," he said.
Coal volumes, which were down 32 percent last quarter will
continue to fall this year, metals will be down because of low
commodity prices and the strong U.S. dollar and "farmers have
been holding onto their corn because they're hoping for higher
prices."
As a result, CSX expects lower earnings per share in 2016
compared with 2015.
"We'll focus on things we can control this year," Ward said.
"We'll focus on efficiency and productivity."