24 July 2007
Canadian Pacific Sees No Need to Split Company
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Canadian Pacific CEO Fred Green.
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Canadian Pacific Railway looked at splitting the company into two
units - rail operations and track real estate - but saw no economic reason to pursue the idea, its chief executive said Tuesday.
There has been speculation since last week that one of North America's largest and most historic railroads could be dramatically
reorganized, after news surfaced that CP had been approached by Brookfield Asset Management.
Published reports say a private equity group headed by Brookfield is interested in splitting CP. The real estate arm would act similar
to a toll highway, collecting fees from the train operating company, the Globe and Mail newspaper reported, citing sources involved
with the plan.
"It's a model that has been around for a couple of years if not longer. I think every investment banker and his brother has walked
it around to the different companies," CEO Fred Green told analysts during a conference call on CP's second-quarter results.
"We have looked at it in the past, but we have never found any form of compelling economics or business case to proceed with
it," he said.
Mr. Green declined to comment directly on Brookfield's potential bid, or speculation that the Calgary-headquartered CP may
be the target of an acquisition by other private equity groups or another North American rail carrier.
Mr. Green's comments echo those of Canadian National Railway Chief Financial Officer Claude Mongeau, who said Monday that they had also
looked at the idea and rejected it on business grounds.
Some analysts say such a reorganization of a large railway could be a difficult sell with regulators. Canadian Pacific operates a
13,200-mile rail network with tracks in Canada and the United States.
"When you review it in detail, you realize there is a lot of leakage from an economic standpoint - tax recapture, transfer taxes
for the actual splitting of assets," Mr. Mongeau told analysts.
Mr. Green said there are also issues such as safety that would also have to be looked at in considering any reorganization. "We
really have to be sure that whatever model is being looked at considers safety and the ability to run trains as safely or more safely
than we do today."
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