The head of Fort Worth-based BNSF Railway is vowing to join any consolidation in the North American industry, saying that Canadian Pacific Railway’s $27 billion bid for a U.S. rival inevitably would trigger more deals.
Matt Rose, BNSF’s executive chairman, is open to making a competing offer for Norfolk Southern, the company targeted by Canadian Pacific, and CSX also would be “very much in play.” While BNSF doesn’t favor fresh dealmaking, the carrier won’t be sidelined if any occurs, Rose said Thursday in an interview.
“We’ve never in this industry just done one merger,” said Rose, 56, who moved into his current post in 2014 after serving as chief executive officer since 2002. “You do a merger and then somebody else announces it because of this issue of stabilization of the industry and parity in various markets.”
A BNSF offer for Norfolk Southern would be akin to Union Pacific’s efforts to step in during the 1990s to “provide a competitive bid when the Burlington Northern and Santa Fe were merging,” Rose said. “If there is consolidation to be had, we would participate as well.”
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BNSF is owned by Warren Buffett’s Berkshire Hathaway, which completed its purchase of the railroad in 2010.
BNSF’s willingness to pursue a tie-up underscores the potential challenge for the U.S. Surface Transportation Board, which would have to evaluate any deal. There have been no major U.S. rail mergers for more than 15 years, and the STB has new untested rules requiring that it evaluate possible follow-on combinations as part of its regulatory review.
Norfolk Southern has snubbed Canadian Pacific, which wants to create a cross-border, coast-to-coast carrier in a North American industry dominated by six railroads. Norfolk Southern and CSX compete east of the Mississippi; Calgary-based Canadian Pacific vies with Canadian National Railway; and BNSF goes head to head with Union Pacific in the western U.S.
Tony Hatch, a former Wall Street analyst who tracked many of the 1990s mergers that created the modern industry, said Rose’s comments were intended to slow down any rush to a round of deals that would shrink the industry’s ranks.
“We’re at this stage where everybody is saying, ‘Look if this happens it’s going to be kind of a big thing and not necessarily a good thing,’ ” said Hatch, who now runs ABH Consulting. “Matt’s move is a warning in order to prevent that.”
Spokesmen for Norfolk Southern, Canadian Pacific and CSX declined to comment on Rose’s remarks. Union Pacific’s Aaron Hunt said, “We oppose rail industry mergers in the current environment and believe the regulatory hurdles for future consolidation would be significant.”