Norfolk Southern Corp. (NSC) completed the acquisition of the Delaware & Hudson Railway line, a subsidiary of Canadian Pacific. (CP), in September, and Canadian Pacific recently offered to buy Norfolk for $28.4 billion on a 50% cash and 50% stock transaction.
Here is a look at some benefits of this deal to help understand the reasons beyond this merger.
This deal will allow the companies to form an integrated transcontinental railroad with the scale and reach to deliver unsurpassed levels of safety and service to their customers and communities while also increasing competition and creating significant shareholder value.
This transaction will have important benefits – substantial tax savings in addition to operating synergies – for both companies because the combined network will reduce congestion in key corridors and will allow them to improve service and lower costs, which is both pro-shipper and pro-competition.
Both the United States and Canada would benefit from having an end-to-end shipment solution that improves safety, reduces highway congestion, improves service, lowers costs and increases overall freight capacity.
About Canadian Pacific Railway
Canadian Pacific is a transcontinental railway in Canada and the United States with direct links to eight major ports, including Vancouver and Montreal, providing North American customers a competitive rail service with access to key markets in every corner of the globe.
Third quarter results
The company generated bottom-line double-digit earnings growth in varied economic conditions and could deliver the highest-ever revenue for the third quarter with 16% growth in adjusted earnings per share and the lowest operating ratio for the period in the company's history. Revenue grew by 2% while the adjusted operating ratio improved 290 basis points to a record-low for the period of 59.9%. Adjusted operating income grew by 10% and adjusted earnings per share increased by 16%.
About Norfolk Southern
The company is engaged in the rail transportation of raw materials, intermediate products and finished goods primarily in the Southeast, East and Midwest and, via interchange with rail carriers, to and from the rest of the United States. It also transports overseas freight through several Atlantic and Gulf Coast ports. Norfolk provides logistics services and offers intermodal network in the Eastern half of the United States.
Third quarter results
Norfolk Southern’s third-quarter results reflect commodities markets that continue to soften, as well as costs associated with restructuring initiatives to strengthen the company going forward. Due to reductions in fuel surcharge revenues in each of Norfolk Southern's three commodity groups and continued reductions in coal shipments, railway operating revenues declined 10%. General merchandise revenues were 7% lower than the same period last year.
Looking ahead to 2016, with a reasonably stable economy and its focus on service, returns and growth, the company is poised for better results.
Competitors
Based on market cap, Union Pacific Corp. (UNP) and CSX Corp. (CSX) are main competitors of Canadian Pacific and Norfolk.
Canadian Pacific is trading at 21.88, a higher P/E ratio compared to other competitors. Norfolk is trading at 17.16, Union Pacific at 14.66 and CSX Corp. is at 14.39.
Canadian Pacific has a great one-year EPS growth of 41.80% while Norfolk has a negative one-year EPS growth of -13.80% below 9.20% and 9.20% for CSX Corp. and 6.80% for Union Pacific.
Last quarter trades
In this quarter Canadian Pacific got a new position in the portfolio of Larry Robbins (Trades, Portfolio) and Whitney Tilson (Trades, Portfolio) while Steven Cohen (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio) increased their stakes by 31.12% and 9.67%. Paul Tudor Jones (Trades, Portfolio) sold out his stake in CP and Andreas Halvorsen and Jim Simons (Trades, Portfolio) reduced their stakes by 21.12% and 12.06%.
Many investors increased their stakes in Norfolk Southern in the third quarter, but a huge increase was made by Joel Greenblatt (Trades, Portfolio) – more than 540%. No gurus sold out Norfolk Southern, but the position was reduced by PRIMECAP Management (Trades, Portfolio), Murray Stahl and Dodge & Cox by by 16.05%, 95.22% and 9.68%.
Main shareholders
Bill Ackman is Canadian Pacific’s main shareholder among the gurus with 9.12% of outstanding shares followed by Andreas Halvorsen (Trades, Portfolio) with 2.72%, Steven Cohen (Trades, Portfolio) with 0.36%, Jim Simons (Trades, Portfolio) with 0.2% and Larry Robbins (Trades, Portfolio) with 0.16%.
Norfolk’s main shareholder is James Barrow (Trades, Portfolio) with 0.71% of outstanding shares followed by PRIMECAP Management (Trades, Portfolio) with 0.3%, Manning & Napier Advisors Inc. with 0.26% and Pioneer Investments with 0.24%.
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