CSX seeks to buy New England regional Pan Am Railways (updated)

Norfolk Southern says it will oppose transaction
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CSX Transportation is in talks to purchase regional Pan Am Railways, a move that Norfolk Southern says it will oppose in a filing with the Surface Transportation Board.
Scott A. Hartley

WASHINGTON — CSX Transportation is in talks to buy 1,700-mile New England regional Pan Am Railways, a move that Norfolk Southern today said it would oppose in a filing with federal regulators.

NS is Pan Am Railways’ partner in the Pan Am Southern, the joint venture that gives NS access to New England via trackage rights on the former Boston & Maine main line between Mechanicville, N.Y., and Ayer, Mass.

“One of the main benefits of NSR’s and Pan Am’s joint control and ownership of PAS was to strengthen competition with CSXT,” NS said in its filing with the Surface Transportation Board.

The filing was dated Nov. 6 but was posted on the board’s website today.

“Any CSXT effort to acquire Pan Am would threaten to materially undermine this existing competition, thus impacting not only NSR, but also rail shippers and other railroads,” NS said.

“NSR is concerned with CSXT’s potential acquisition of Pan Am, specifically its interest in PAS, and is further concerned with CSXT’s potential use of a voting trust to acquire Pan Am,” NS said in its filing.

Placing Pan Am in a voting trust would cause immediate “competitive harm,” NS said. NS also argues that CSX would require STB authority to place Pan Am into a trust.

CSX confirmed that it is talking with both Pan Am and NS.

“CSX has been in discussions with Pan Am Railways, Inc. regarding a possible transaction,” the railroad said in a statement. “As part of this effort, CSX has engaged directly with Norfolk Southern to understand any issues they might have.”

But CSX is not the only contender to acquire Pan Am Railways.

“Pan Am is currently negotiating with various entities regarding a possible sale. At this time the process is still moving forward and until its conclusion Pan Am will not be making any comments,” Pan Am Executive Vice President Cynthia Scarano says.

Word that CSX was interested in acquiring Pan Am came as a shock to independent rail analyst Anthony B. Hatch.

“I don’t understand why they would need to do this given that they are already in New England,” he says.

Canadian Pacific and Genesee & Wyoming were thought to be interested in Pan Am, Hatch says. The transaction could be worth $700 million, he says.

If CSX were to emerge the winning bidder for Pan Am, it would control the main freight route into New England — its own former Boston & Albany line — as well as a 50% interest in Norfolk Southern’s route into the region.

But no short line railroads would lose access to two Class I railroads, and only a couple of shippers in the Boston area would become so-called 2:1 shippers, those whose rail options go from two railroads to one.

Despite changing traffic patterns in New England, Pan Am has been profitable every year since it was founded in 1981 as Guilford Transportation Industries. The privately held company is controlled by Timothy Mellon.

The system stretches from the Albany, N.Y., area to Maine and includes trackage of the former Maine Central, Boston & Maine, Portland Terminal, and Springfield Terminal railroads. A haulage agreement with a trio of Irving short lines — Eastern Maine Railway, Northern Maine Railway, and New Brunswick Southern – extends Pan Am’s reach into northern Maine and Saint John, New Brunswick.

Pan Am and Norfolk Southern in 2008 formed a joint venture called Pan Am Southern that consists of 437 miles of rail lines and trackage-rights routes that provides NS access to the Boston area via its so-called Patriot Corridor.

Pan Am’s Springfield Terminal subsidiary operates the Pan Am Southern, which also includes the north-south route Pan Am uses between White River Junction, Vt., and its branches in Connecticut via Springfield, Mass.

The CSX main line connects with Pan Am outside of Worcester, Mass.

— Updated at 5:30 p.m. CST with comment from CSX, Pan Am, and analyst Anthony B. Hatch
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