A CSX coal train moves past an idling CSX engine at the switchyard in Brunswick, Md., on Oct. 16, 2012.Gary Cameron/Reuters
A merger between Canadian Pacific Railway Ltd. and CSX Corp. could help the Florida-based freight hauler fill a leadership void left by the departure of Oscar Munoz, chief operating officer.
The departure of Mr. Munoz, who was the heir apparent to the CEO's job, also complicates the company's drive to slash expenses and boost its closely watched operating ratio, said Walter Spracklin, an equities analyst with Royal Bank of Canada.
"With Munoz's departure, CEO succession is undoubtedly now in question," Mr. Spracklin said in a research note. "A merger with CP would certainly address this issue given the strong capabilities of CEO Hunter Harrison, COO Keith Creel and the CP team."
"It's not actually clear they have leadership to run their company," said Bill Ackman, the activist investor who won control of CP in 2012 and hired Mr. Hunter to revamp the company's operations, speaking on CNBC on Friday morning.
CP walked away from failed merger talks with CSX last fall, but the notion of railway consolidation has never gone away. Mergers in the railroad business would ease congestion and improve traffic co-ordination and service, executives at the Calgary-based company have said.
Executives at CSX and other railroads have disagreed, saying U.S. regulators would be unlikely to approve any deal, given the service complaints that have dogged the industry.
Mr. Spracklin said the executives CSX promoted to back-fill for Mr. Munoz are "capable," the company has lost the one executive who was the "torch bearer" for its turnaround.
"With his sudden departure, the lack of a clear leader may complicate the company's strategic plan for major cost reductions. At the end of the day, it is our view that another overture will likely come at some point from CP; however, we believe this will likely be met with continued resistance from CSX. What we don't know and what will be key is how much pressure CSX's investors, current or new, might apply on the board to begin exploratory talks," Mr. Spracklin said.
Speaking on CNBC, CP's Mr. Creel did not squash speculation that a merger was back on the table.
"Obviously, there's an opportunity there, but it's up to CSX to decide that at this point, their board," Mr. Creel said.
Eric Atkins