00:00 Julie Hyman
There may be a mega merger into the railway world, Union Pacific confirms that it is in negotiations to acquire rival Norfolk South in a deal that can cost over $ 60 billion. Following confirmation, Ken Hexter from B by securities analyzer has increased his price target for Union Pacific shares to $ 271, compared to $ 262, and he joins us now. Ken, it’s good to see you.
00:26 Ken Hexter
Hey, good morning, Julie.
00:28 Julie Hyman
So why would it make sense to collect these two railways? What when you talk about two railways, right? What kind of synergies are you talking about, especially since I don’t think it would mean less railway lines, right?
00:42 Ken Hexter
No, in this case it’s not, is it? In historical mergers, we saw that, you know, in the 1980s, 90s, we saw many overlapping mergers where there was Burlington northern Santa Fe or UPS P. You actually saw them enter and then actually pull the net. This would be an end -to -end fusion, so you become transcontinental that you do not have in the United States. You have two in Canada, but we do not walk from the shore to the US. It’s about connectivity and that’s, you know, efficiency. So when you ask what the benefit is, it’s for customers, right? You can get, you do not have to spend a day, a day and a half, sitting in the yard as you pass from eastern medium, you can get a good hard flow.
01:26 Julie Hyman
And why, if that, I mean, that is, it sounds logical, right? It just hasn’t happened so far for regulatory reasons or are there any other historical obstacles?
01:40 Ken Hexter
Well, there is nothing magical in the Mississippi River about how historical mergers have happened, but it’s simple, you know what you have seen very initially overlaps. You even know, Norfolk Southern and CSX divided Conraail in the late 1990s. So, you were watching things you overlap in and you could come to investors and say, “We are doing this and we’re just tearing our expenses.” This is for growth, do you know how you earn business from trucks? You have better service and continue to grow. So you are right, the regulators are fluctuating before allowing mergers. In 2000, there was a proposal to unite the North and Canadian national of Burlington, one of the national Canadian railways. And this started the merge moratorium. So, STB said, “Wait a little, we just went through a lot of mergers. Let’s think about it.” And part of this was that it had to be for the public good, the public interest and you had to increase competition through mergers. So this should be away. Well, now, is this just rail competition or are we increasing competition from the vehicle? This is likely to look at this administration when they look at this merger, and you probably watch how you are doing the railways more competitive for industrialization and everything else that this administration wants to manage on a local basis.
03:38 Julie Hyman
So do you think, so I mean how likely you think then, if you know, there are obviously a few IFS here. If the two actually agree on a deal, then do you think there will be this regulatory approval?
04:00 Ken Hexter
Well, look, I think there are many opportunities where Jim Vena, the CEO of Union Pacific, is sailing this. He made an article in mid -May, where she was discussed in the industry. We had a StB chairman at our conference in mid -May. We had Jim Ven at our conference conference. So there were many things about it before, you know, we have come to this point where they have now confirmed that they are in discussions. And I think this is interesting because you have not heard a loud voice appear from above and say absolutely no. It will never happen. And I think that is why you have each of these progressive steps about the discussions that continue, because, you know, it prepares the market. But you know, look, we will surely have time when regulators, government agencies, freight forwarders, unions will all listen to their voices through the STB process to see what you say. What will be the result? Will he even be allowed to pass? Will there be things that they will have to give up, whether it is a line sales or overlapping access to the network, something called open access to compete? So it will be interesting to see where this comes out in the spectrum. But for now, discussions are progressing. They noted that they were in advanced conversations and we would see where it goes from here.