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BNSF ready to join consolidation play

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World Coal,

Events in the North American rail industry has taken another twist as the Executive Chairman of BNSF promised to get involved in any consolidation of the industry should Canadian Pacific (CP) win its battle to takeover US rival, Norfolk Southern, which remains implacably opposed to such a deal.

“We’ve never in the industry just done one merger,” said BNSF’s Matt Rose. “You do a merger and them somebody else announces it because of this issue of stabilization of the industry and parity in various markets.”

Meanwhile, Norfolk Southern reaffirmed its rejection of CP’s offer, boosting the chances of a hostile takeover bid similar to that waged by activist investor, William Ackman, for control of CP. That led to the replacement of most of CP’s directors and the installation of Hunter Harrison as CP’s CEO.

Perhaps tellingly, Ackman was involved with Harrison in a recent investor conference call that discussed CP’s bid for Norfolk Southern.

Rose’s comments, however, could complicate any potential tie-up between CP and Norfolk Southern – a deal that already faces significant regulatory hurdles. Under new rules, the US Surface Transportation Board, which would need to sign off on any mergers, has to consider possible follow-on mergers as part of its regulatory review process.

Indeed, in speaking up now, Rose may be trying to scupper any chances of a deal, rail analyst, Tony Hatch, told Bloomberg.

“We’re at this stage where everybody is saying, ‘Look, if this is happening it’s going to be kind of a big thing and not necessarily a good thing,’” said Hatch. “Matt’s move is a warning in order to prevent that.”

What is sure is the BNSF would not be short of firepower going into any period of consolidation: it’s owned by Warren Buffett’s Berkshire Hathaway, which bought it in a deal worth US$44 billion in 2010 and had more than US$66 billion in cash at the end of 3Q15.

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