Architect of chAnge: MiKe hAVertY Some railroad industry experts say the IC-KCS combination failed because IC arrogantly took the position that KCS needed “shaping up” and sent some executives to Kansas City to start the process. KCS managers, like those on just about every railroad, have their pride and made it clear that the IC executives were neither appreciated nor welcome. There also might have been some regulatory “issues” of premature control, which have scuttled other rail mergers. KCSI spun off parts of the holding company in 1995, beginning the dismantling of the company that didn’t really take place until 2000, when the railroad was separated from the Janus and Berger mutual fund families and DST, the financial services operation, shrinking the company to the pure railroad that it is today. The company had to undergo a 2-for-1 reverse stock split that Haverty calls a “painful process,” in order to keep the stock price in double digits. KCS employees and executives no longer look over their shoulders to see if an acquirer is gaining on them. They also have been able to focus their efforts on upgrading the railroad and improving the service it provides customers. One of the first significant projects was upgrading the “Meridian Speedway,” a joint venture with Norfolk Southern to upgrade service between Meridian, Miss., through Jackson and Vicksburg, Miss., and on to Shreveport and the Dallas-Fort
Worth complex. NS, which had the cash to fund most of the project, had the traffic base but it lacked a high-speed route into the heartland of Texas. The Speedway gives NS the direct route it needs, shorter than either the route through New Orleans or Memphis that it was forced to use previously. The Meridian Speedway project triggered a lot of gossip that it would not be long before NS would acquire KCS, but such talk eventually died out. KCS became the subject of merger rumors more recently after New York hedge fund Pershing Square Capital Management spearheaded a shakeup of the Canadian Pacific. Talk of a CP tie-up assumed that a newly aggressive CP would want KCS to provide it with a direct route running north-south between Canada and Mexico, using the CP’s former Milwaukee Road route from the Twin Cities to a junction with KCS at Kansas City. CP rival CN already has a single-line route from the industrial heart of Canada down the east bank of the Mississippi River to the Gulf of Mexico. CN’s purchase of the Illinois Central in 1999 greatly expanded its traffic opportunities in North American north-south markets. CN still does not have direct single-line rail access to Mexico and must interline traffic to/from Mexican automobile assembly plants and other industries. KCS, on the other hand, has its own route around the busy
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Railway age
July 2012
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