News / BNSF hires Goldman Sachs to explore railroad merger opportunities

ID 30339079 © Filedimage | Dreamstime.com

Takeover talks appear to be enveloping North American railroads, with the massive tie-up between Norfolk Southern and Union Pacific on the cards, other dominoes look set to fall.

That looming merger appears to have provoked the Warren Buffet-owned – by way of his Berkshire Hathaway – BNSF to consider its own future, with reports that together with Goldman Sachs the privately-held railroad is exploring its own potential takeover targets.

While the target remains unclear – Semafor suggested BNSF may make its own punt for Norfolk Southern, if not another east coast operator, namely CSX – it would make sense.

As The Loadstar reported earlier this month, UP’s acquisition of Norfolk Southern would not only mark a return for transcontinental railroads to North America, it would leave competitor BNSF at a disadvantage that could “force it to make a similar move”.

Spokesperson Zak Andersan rebuffed such a suggestion, telling Trains a merger would only happen if “customers, policymakers, and the communities” indicated a desire to see one.

Mr Andersen added: “We view it as unlikely as we’re not hearing from customers or the other constituencies that they want to see further consolidation in the industry,” although Semofor’s reporting, if accurate, indicates that Goldman Sachs’ arrival on the scene has changed that.

Interestingly, there is a feeling that Norfolk Southern – which has underperformed – would prove a better fit for BNSF than it would Union Pacific.

Certainly UP had looked into the prospects of acquiring CSX, but chief executive Jim Vena seemed to feel while the better fit, the chances of convincing CSX to merge with it were slim to none, leaving Norfolk the best option.

One question mark that remains is whether the Trump administration would be more willing to sign off on an east-west merger than his predecessors.

During Union Pacific’s H1 investor call yesterday, the company indicated that the recently installed US administration was less bound by regulations that past White Houses, at least on issues connected to railroad safety and the possibility of one-person crews.

And the Trump appointed Surface Transportation Board (STB) chief, Patrick Fuchs appears willing to look beyond the precedent surrounding railroad M&A activity.

Reportedly describing the 2001 STB rules regarding mergers as “restrictive,” he suggested they instead be interpreted “pragmatically”, and with a focus on rebuilding US infrastructure, it could be the first hint of possibility.

Fair regulatory winds notwithstanding, NS CFO Jason Zampi told the Wolfe transportation conference in May he saw “a lot of benefit” in the merger.

“I also view the regulatory framework as pretty challenging,” he added.