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Tuesday, January 26, 2021

Buffett’s BNSF open to bid for Norfolk to challenge CP offer

The railroad controlled by Warren Buffett’s Berkshire Hathaway Inc. is open to making a competing bid for Norfolk Southern Corp., the target of a $27 billion takeover effort by Canadian Pacific Railway Ltd.

While BNSF Railway Executive Chairman Matt Rose doesn’t favor more North American rail mergers, he said Thursday that the company won’t sit on the sidelines in any fresh dealmaking and could jump in to pursue Norfolk Southern.

A BNSF intervention would be akin to Union Pacific Corp.’s efforts to step in during the 1990s to “provide a competitive bid when the Burlington Northern and Santa Fe were merging,” Rose said in a telephone interview. “If there is consolidation to be had, we would participate as well.”

Rose’s comments raised the prospect of another suitor for Norfolk Southern, which already has snubbed Canadian Pacific, as well as additional tie-ups in an industry already condensed by mergers during the 1980s and 1990s. CSX Corp., Norfolk Southern’s larger rival in the eastern United States, would be “very much in play” if Canadian Pacific succeeded with its effort, Rose said.

“We’ve never in this industry just done one merger,” said Rose, 56, who became executive chairman 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.”

CSX rose 2 percent to $25.20 at 8:47 a.m in New York in early trading, while Norfolk Southern gained 2.2 percent to $89.57. Rose said the carriers’ CEOs — Mike Ward at CSX and Jim Squires of Norfolk Southern — were aware that Fort Worth, Texas-based BNSF is circling.

“I’ve had general conversations with both of them and told them that we’re going to watch this with interest,” Rose said. He described the discussions as centering on how regulators might view railroad consolidation, but otherwise declined to give details.

Spokesmen for Norfolk Southern, Canadian Pacific and Jacksonville, Florida-based CSX declined to comment on Rose’s remarks.

Canadian Pacific’s proposed Norfolk Southern combination would create a transcontinental carrier, upsetting the balance of power in a North American industry dominated by six major operators: Norfolk Southern and CSX compete east of the Mississippi; Calgary-based Canadian Pacific vies with Canadian National Railway Co.; and BNSF goes head to head with Union Pacific in the western U.S.

“I’ve always said that the industry would merge into the final round with one of two conditions,” Rose said.

One scenario would be a major railroad stumbling into financial trouble, Rose said. “Or two, due to population growth and the economy that we needed a significantly larger amount of railroad capacity, which we think would be a benefit of a consolidation. We’re not at that point.”

But putting Canadian Pacific together with Norfolk Southern would leave CSX at a disadvantage, inevitably making that railroad a target as well, Rose said. Canadian Pacific sees $1.8 billion in merger benefits from a Norfolk Southern deal, which “quite frankly creates an uneven, unstable railroad network with CSX,” he said.

“Then you’ve got two railroads in the west that would be looking at, ‘Should one of us jump in with the NS assets or should the other one jump in on the CSX assets?’ ” Rose said.

Buffett completed his purchase of BNSF in 2010, a transaction valued at about $34 billion that he described as a bet on the U.S. economy because of railroads’ vital role in moving freight. If BNSF were to play a role in further industry consolidation, the company could bring considerable resources to bear. Omaha, Nebraska-based Berkshire had more than $66 billion in cash at the end of the third quarter.

While there haven’t been any combinations among major North American carriers in the 21st century, BNSF does “scenario planning every year,” Rose said.

“We’ve thought about it long and hard,” Rose said. “I have the advantage also of having an owner who does these things as a steady diet. So he’s very familiar with mergers and acquisitions.”

—Noah Buhayar contributed.

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