UPDATE: June 2, 2022: CSX said Wednesday it has completed its acquisition of Pan Am Railway, six weeks after the Surface Transportation Board approved the merger. Financial terms were not disclosed.
The STB signed off on the deal April 14, saying the acquisition does not pose an anticompetitive threat to the industry and would give shippers "additional marketing opportunities and more efficient single-line service" in the Northeast.
- CSX plans to acquire Northeast rail line Pan Am Railways for an undisclosed sum, the Class I railroad announced Monday. The transaction has not yet been approved by the Surface Transportation Board. UBS analysts estimated the purchase price to be less than $700 million, in a research note published Monday.
- Pan Am Railways owns and operates 1,200 miles across New England. The transaction would mark CSX's entry into Maine, New Hampshire and Vermont.
- "CSX's agreement to acquire the Pan Am shows both their focus on driving volume growth and also confidence they can add value even when applying their model to a system which has a low density of traffic," according to UBS, naming forest products as significant freight category for the short line.
Acquiring Pan Am will increase CSX's presence in the Northeast corridor and build its network and connections to population centers. Given the rise of East Coast ports in the last two years, more points of connection to CSX's network could benefit exiting shippers and entice new ones.
If the acquisition goes through, CSX will bolster activities at the Port of Boston and gain access to the ports of New Hampshire and Portland, Maine.
CSX confirmed its intention to purchase Pan Am to media earlier this month, but objections from Norfolk Southern, filed with the STB, quickly followed. Pan Am has a partial stake in the 600-mile Southern System, a joint venture with Norfolk Southern, which runs between Albany, New York, and Boston. Norfolk Southern wrote to the STB Nov. 6, noting that the intention behind its decade-old joint venture with Pan Am was to "strengthen competition" with CSX.
"Any [CSX] effort to acquire Pan Am would threaten to materially undermine this existing competition, thus impacting not only [Norfolk Southern], but also rail shippers and other railroads," wrote Norfolk Southern counsel Michael Rosenthal in the letter. The acquisition is now in the hands of the STB.
"We believe that CSX is planning to wait for STB approval before completing the acquisition. It is possible that CSX and [Norfolk Southern] could reach an accommodation that would remove potential objection from [Norfolk Southern] to STB approval," wrote UBS analysts.
Rail experts and stakeholders have been expecting a wave of short line mergers and acquisitions for months and perhaps years. Some deals have materialized, but the pandemic may have put a damper on activity, according to Tony Hatch of ABH Consulting.
"I think the pandemic slowed down the interest in infrastructure firms, and strategic buyers and others in short line and regional railroads," said Hatch, at the North East Association of Rail Shippers virtual meeting in September.