Q1 2021 Canadian Pacific Railway Ltd Earnings Call
We address perhaps the human a buzz that's in the air and I'm going to take it from an approach. Well, I'm going to focus on the truth because the truth matters I think the truth will indicate that yesterday we all woke up to witness unsolicited LED Superior offer to the KCs board into the market in comparison to our partnership agreement with the KCs that we announced a month ago. And I'm sure the truth is you're all sitting there thinking. Well, where does CB stand? What do we think? How will we react perhaps where I'm surprised.
I think the best and only way to address those points and frankly anything tied to to what is truly the only unique and unparalleled.
Strategic value opportunity combination is with the truth.
The undeniable facts, I think that's perhaps the best way to do that. So so let's start with where we surprised the answer is no obviously perhaps. I've got a bit of unique industry wage in my history uniquely Ram. Both companies is a CEO obviously at this company as an operating officer at this company is the senior Operating Officer competitor the alternative both with experience on the network it actually I think perhaps people Realize by now if it's not my
Vernacular that gives it away. Then my resume does I started my career with the Canadian national and the Illinois Central and Memphis, Tennessee and worked in Jackson, Mississippi where I as I shared with our KCs Partners last week in Kansas City my first experience 25 years ago working with the KCs started competing against and partnering with at the same time as Jackson interchanging with and actually the truth is that my senior operating Chief earmark read actually started his career on the KCs spent twenty years there and that's where I go back to my IC days. I developed the respect for Mark as an operator. So that's true beyond that though if you think about
Do you need values?
That this combination this partnership is very unique partnership represents their undeniable truths and I think I'm just going to go through them.
It's a truth number one.
based on the merits
the facts of our proposed combination and partnership with the KCs are combination. See pkcs is the only
true usmca networking opportunity. It's the only possible class one combination that answers the public interest tests off.
The only not would have many the only why do we say that? Why is that true? Why is that undeniable?
whatever one let's start with truth number to it's pro-competitive multiple fronts new routes new markets new competition introduced customers get reached today with this combination box went approved and we believe it will be
that quite frankly without it is impossible.
New competition is introduced be it with BNSF be it with u p v it with sent that simply doesn't exist today. That's enabled by this combination box number 3 Pro service.
The service that this creates were serviced as an exist for many of those customers the opportunity perhaps to invest in a grain elevator two thousand miles north of Kansas City and the hard part of Iowa territory World line runs the KCs shipper today that perhaps have always wanted to have a better origin Market, but the investment wouldn't support it.
The economics didn't work well in a single line railroad that changes the entire conversation. And in fact, I know that's true because the truth is last weekend can't the city when I had the opportunity to meet and share Vision with and discuss and listen to concerns of several KCs customers that happened to be a topic.
And the truth is that's not the first time we've discussed it. So Pro service and the truth number for that's undeniable the resounding overwhelming support of our customers plus 482 change. In fact, we welcome Bartlett, which the truth is is KCs is largest customer that supports
The opportunity this deal uniquely unlocks just yesterday that we filed with the S TV.
So to deny that four hundred voices Plus have spoken and continued to speak is denying the truth and supported this value-creating transaction. Truth number five. There are no true losers zero.
Pretty undeniable number. It's a very unique number. And again, the truth of this proposed transaction is the only combination that results in 0 instances of any customer that enjoys a level of service today optionality from different carriers to truly lose zero only gain,
truth number 6
and support a truth number five not one customer with less options.
Truth number seven this uniquely enables quality growth and when I say Quality quality matters, that's keyword. You've got two railroads that the last three years have led Ministry producing sustainable profitable quality growth not growth for growth's sake growth that matters growth. It comes to the bottom line that drives earnings performance drives value creation. And the truth is these two railroads have led the industry the last three years in total shareholder return. It's undeniable the truth speaks for itself through Thursday great disinvestment uniquely unlocks and enables.
Additional investment to create capacity on these lines key lines of needed capacity, especially in light of what's happening in North America today in Key routes from Mexico to Chicago on existing infrastructure that we uniquely on being c p and KCs that quite frankly Standalone would never be possible.
Who's number 9 and benefits the environment true?
realistic
opportunity to take trucks off the road and put them derail and another undeniable truth. If you think about some of the communities that that matters in I think about Chicago and you know why I think about Chicago cuz the truth is I'm a Chicago and I live in Chicago. I understand the congestion on the highways in Chicago. I've lived it. I understand the congestion in the rail network and how exposed we are at times. I've lived through it. So to suggest that bringing more traffic into Chicago is beneficial. I think it's untrue to suggest that taking traffic out to suggest that taking trucks off the road that otherwise would be populated on Highway 294 or on Highway 80 or on Highway 96 Road Highway 94 to take them off the road and put them on the rail. That's a huge opportunity. Not only for local congestion.
that's a
Unless greenhouse gas emissions in the Chicago Metropolis area, but for the entire route from Mexico from Monterrey Mexico City that 2800 miles we've talked about yesterday. I heard so much about need to truly realize that opportunity is undeniable number 10.
The truth that it unlocks unique actually attainable value for the shareholders. This deal is approvable. It's doable.
In order to realize the value got to get the deal done.
There's over $800 million dollars of conservative synergies that we spoken to that this deal represents for our shareholders to benefit from for our employees both KCs as well, CPS job creation of benefit from for the environment truly to benefit from value across all areas.
truth number 11
All those reasons stated went through ten leads the one undeniable truth and that's called deal certainty. This deal represents the path to True realize value.
Compelling value now and the value of represents it even more compelling value long-term long-term sustainable value that is only uniquely created by this combination with those are undeniable truths.
Now keeping with that thought let's let's now take a look at the seeing KCs proposal. Let's talk about what's undeniable truth. So where my eyes open yesterday when I read the press release the truth is yes. The has not valued number was not Denali I opening $325 bucks.
But the reality is that only matters if it's attainable.
Unrealized value is still equal to zero if you can't do the deal if it's not doable, you never get their the facts matter.
Teresa number two why I feel so strong about number one. This deal is anti-competitive when you look at it the facts and not just the spin or perhaps the small wage. I think disingenuous, It's yesterday that this really boils down to 65 miles and Louisiana. Come on.
Come on, man. That's not the truth. It's anti-competitive. How many customers multiple customers are losing service options how many customers today that just
CPC it alone. Enjoy an opportunity to choose between the two of us and partnership with KCs lose that option how many 221 scenarios how many loss routes 43 the undeniable truth. If I'm in Superior Wisconsin today and I happen to know who is in Superior, Wisconsin a day. It would be seeing you be VN and guess who CP well guess I'll see if he gets to the southeast out of Superior, Wisconsin c p partners with kcso free, Kansas City.
The truth is our deal represents a single line move with a c p k c combination the truth is also that in the absence of that.
You eliminate an option in Superior, Wisconsin? And that's just one of many somehow that truth didn't come out yesterday.
Who's number 3 it's anti service how many customers are left with no service or less service options?
this
Truth is once it's analyzed those numbers will be revealed because certainly they weren't spoken to yesterday, but the truth will be revealed because the truth matters.
Number for truth already and overwhelming outcry of opposition from customers.
And here's some undeniable truths the reality is this proposed transaction c n k c s is already picking winners and losers the truth is if you're in the egg in the street life and you happen to be located in North Dakota, South Dakota, Minnesota, Iowa.
And the green belt of America Middle America this deal represents a lost opportunity this still strands our product. This still says you never enjoy
single line service that
the C pkcs provides or creates in the history again.
This is if you're in a d m or c h s and those are our customers it CP the truth is they hurt the truth is they're penalized. Let's talk about the automotive industry the truth this
If you're a Ford or GM?
your current CPK CS
OEM that enjoys business coming out of Mexico moving to all Canadian markets over Kansas City through that partnership in the absence of that partnership. What are your options?
The truth is and if I were at Ford, I would be concerned.
conversely General Motors
The truth is Sienna has four plants in the u.s. To in Canada.
And it is instance. It's seeing were to combine with the KCs. They'd have three uniquely single line served GM plants in Mexico.
The truth is that creates imbalance seeing would serve nearly half of their North American plants if I were General Motors, I think I'd be concerned. Let's talk about ECP energy chem and Plastics truth is think about the propane customers seeing what have virtually a monopoly on the propane Market, they'd have control the complete markets pack. That's real PG.
CN Rupert export US and Canada destinations in Mexico
if you're Exxon, and that's a customer we care about it Canadian Pacific and you happen to be located in Edmonton because they are and you also own a refinery in Baton Rouge that today is uniquely service you provided access by c p k c s combination over Kansas City or the alternative would be a seeing direct line to Baton Rouge that goes away. That's the truth.
Forest Products, there's some more painful truth there, too.
if you're
A customer single answer by seeing in Canada. You understand. They've already got control of ninety percent of the Canadian production.
In this model, they're suggesting the truth is they could direct Forest Products close based on Broad control boards and a destination markets across Canada and us they could pick and choose the truth. I don't know what customer that would enjoy that or choose that now let's go to Intermodal that's where the real value creation is in the story.
The truth is there's only four north south options today.
DP b n c n and KCs
this still suggests there would be three but the c n k c s merger u p b n CM KCs is the Sienna absorbs the KCs option.
pretty undeniable truth
If you were mayor scan, that's a partner that we care about it c p especially so with our new partnership in the long-term commitment, they made us and the long-term commitment we made to them and the unique Investments. We met with him a unique Investments. They made with us we care about their long-term health.
Because Sam would control access to the ports the mobile their terminal Lazaro Cardenas, which would be their terminal. I think it's undeniable that would create a lot of Leverage in that relationship. If I were mayor's the truth is I probably wouldn't be happy about
first number five. I think it's important. We keep talking about the truce to suggest overlap is isolated again to my point earlier to 65 miles in Louisiana. It's not true. I guess that suggests if you believed to be true that the overlapping Connection in Springfield, Illinois doesn't exist. The customers that are served by KCs or served by Canadian national. No Maja and Council Bluffs that would go to one. I guess that doesn't exist same concerns in st. Louis the points I made about secure Superior, Wisconsin Mobile, Alabama Jackson, Mississippi of many.
Perhaps to sound that don't understand that's not material. But I would suggest that every one of those locations with every one of those customers the truth is they they care.
Who's number 6?
And I think this to be true.
They either don't know how much damage this proposed combination could create or worse yet. They do and they prefer not to share the truth.
Who's number 7?
I don't think they really know what growth this may or may not create. They obviously haven't done their homework.
Or understand the markets or worse yet. They have and they do and they prefer not to speak to the adverse impacts and the lack of growth the lack of stifle competition that this represents back to my earlier truce when I'm thinking about the ACT shipper or the chemical shipper for the lumber shipper that gets stranded because of this proposal then uniquely would be benefited compared to our FAQs.
choose number 8
Think about investment, you know to to realize these growth potentials that they spoke to it takes some investment.
And to think about the truth is they're prepared to go to a four point. Six times balance sheet locking up their capital in there in the money. They would need to invest in this proposed combination lock unlock this growth is undeniable.
Who's number 9 the benefits to the environment? You know, I heard that spoken to a lot yesterday. I think pretty aspirational.
Roeder L conversion, I think we understand the market better than they have because we've done our diligence. We've been at this for quite some time in partnership with our partners that KCs developing these opportunities, you know, John will get to the facts the truth of our energies conservative. Yes, but realistic absolutely at the same time. Yes.
and to think about
the number I heard yesterday seventy 5% of the synergies of this billion dollars of synergies is all in Intermodal.
If you look at the facts suggest that this Intermodal is coming off the road going to the rail. It's coming out of Mexico Monterrey Mexico City. It's going to Chicago. It's going to the Detroit. I'm going to Toronto again. If I go back to our Cherise about our deal list of speak about Chicago the truth is their terminals located on the south side of Chicago with him, perhaps the smaller terminal in Joliet if the traffic is going there to get to its markets which are currently all over the greater Chicago area. It's a very large.
Population Center the truth is it's going to be on the highway.
The truth is it's still going to congest the streets of Chicago.
It's still going to create greenhouse gas emissions in Chicago and again sticking to the Chicago truce if I think about the western part of their Network and I think about all those other troops with the way they would direct traffic is only route to access the new network. They proposed via Kansas City or their existing network is through Chicago and you know what it is true that it would go over the ej&e.
The truth is probably the folks that live in Berrington the same folks that we're concerned about the deal when it was created.
The same environmental impact the adverse environmental impacts that did send has had the mitigate I know to be true because I understand those I was there when that was created. It's those same Community Jack Berrington, it's Aurora. It's Naperville.
It's Juliet.
Those our troops and I would suggest that their truth in their reality would beg to differ with perhaps the version that seeing has put forward.
truth number 10
Is the value really attainable to me if value is unattainable? It's not true value.
And I think you gotta think is it attainable? Even if we're in denial? I think this is a fact I think nobody would discount this or disagree. I heard yesterday in a in a Pioneers PS are pioneers with the last I looked the truth is they don't work there anymore.
They're not they're they're running out of the railroads that Talent is all over this industry.
It's not the Pioneers at least still working at Canadian national.
So then I think about the current company they say they can but can they and the truth is I have to go back to only thing I can look at and that's fact in the facts show and I think I spoke to a rep earlier.
The track record. That's all I can gauge it by that's the truth ten years of under-performance in our industry ten years of under-performance not 110-volt paid and if I go back in history because I was there then ten years ago.
That teen those Pioneers let the industry they didn't Trail the industry the different team. It's a different game. So to assume the same future performance because we did it in the past we could do it in the future. The truck is an investor. That's a pretty risky proposition.
That leaves been a truth 11:00.
Absolute truth. It's undeniable is still uncertainty for all of 1 through 10.
Which means to me the headline value could be 500% more than our real attainable value. It's fantasy money. It's fool's gold. And then my last through Thursday. I know the team of the KCs. I've got a deep respect. I've had time to work with those future Partners like-minded company crowd company smart railroaders engaging of directors. They're no fools.
Stb. I feel the same way. They're experts in this space. They understand what competition means they understand what service means and to suggest that they'd be foolish enough.
To believe what was said yesterday as Five Points that represent that proposed deal is just simply not true.
And then finally the investors that's you.
At the end of the day, you're the ones that have to make the decision ultimately and again, I think.
Truth matters, I think if you're an investor and you look at What story do you believe what what represents truth? I think the training that you want to join the train you want wage board as the one that's most probable based on not what they say. But by what they've done
Our story at CP we the story of doing we said we're going to do it's a story turning this company around taking this proud town and group of railroad is in creating a unique value in this industry. That's a ten times a multiple over the last decade compared to that story. And again, the truth is you'll have to decide where to put your value.
So that's my story The truce. I think the conclusions are pretty obvious and we'll save discussion about that for the Q&A. So now let me get to the other realtor and that's exciting results that that we're about to talk about and I I want to thank our team of railroaders again. I say this over and over again, it's because I mean it we couldn't do this without these railroaders.
These railroaders our family of railroaders. That's that's all of us. That's not just management. That's not just leaders. That's our partners. That's our family enable these results. It's our Collective efforts that enable it that's not going to change their extremely proud of this company about this historic transformation. They're excited. They recognize what this represents whether it's the man or woman on the ground wage, whether it's the union leader. We've been engaging the partners in our business are excited about this opportunity and they they're excited about these results.
So two of these results again, I think the truth is it's pretty unique in this industry.
First quarter revenues a two billion and adjusted operating ratio of 58.5 and adjusted EPS of 1% It's pretty impressive. It's a strong performance enabled by a strong operating performance Market is team have done a phenomenal job. If you look into the details, the truth says records for weights again and links again, even in spite of the polar vortex that we went through in February optimizing our assets our operation finding new levels of efficiency essentially creating new levels that that's what a true culture a PSR enables them come.
It's not an aspirational goal.
So again, they've done a phenomenal job.
I'm going to stop at that point and and turn it over to the John to bring some color on the markets and then they deem we'll wrap us up with with the color and the numbers and and we look forward to to having a truthful discussion after over to you John. All right. Thanks Keith and good afternoon everyone. So let me let me start by saying I was I was very pleased with how the quarter played out, you know aside from the challenging winter weather conditions in February that that Keith spoke to January came in significantly above are high expectations in March with an all-time record month for us the demand environment across most of our business lines continue to strengthen and and frankly super excited and more excited than I was coming out of queue for on what this year's going to shape up to be so looking specifically q1 rtms or slightly positive wage.
Quarter total revenues were down 4% fueling that facts can find for about a 4% headwind in the pricing environment continues to strengthen for us. I'll take a look at our our Revenue performance here now by commodity and and speak to the results in a currency adjusted basis. So starting with grain volumes are up 19% on the corridor with revenues up 10% off. So every month this quarter in q1 was a record in Canadian grain for us marking it six straight record quarters. I'm incredibly proud of of our operating came across the entire network and our partners in the grain supply chain that helped us execute and deliver this exceptional performance. I'm also pleased to provide an update on the volume related composite price index are the VR CPI, you know, this is the the the index that by the Canadian Transportation agency and wage
We we had appealed the methodology.
He changes that had taken place for 20 21 crop here and we were successful in the appeal and the CPA is re-evaluating their cost of capital assess off on the VR CPI. We expect that change for the current crop here to now come in at about a -2 to 3% compared to the original assessment of a round -7 percent.
And grain front another great story are strong origination franchise continues to see robust demand again. The operating team here working closely with our customers took over the the grain grain the market or rtms are up over 35% year-over-year demand to the pnw for export remain steady and some of the strongest we've we've seen in years now looking forward to fight some declining stocks in areas across Canada and and dry conditions in some Regents. I continue to expect Grain on both sides of the border to continue to deliver steady volume as we move through court or two on the potash front volumes were down 9% on the quarter the decrease in volume reflects the impact to export volumes as a result of some track expansion work that's been ongoing at camp in Texas Portland facility. I can tell you this work is now completed. We're we're
Working closely with Camp attacks as this will drive increased capacity and new efficiency through this terminal Outlet. Although Mark or April here is is off to a little bit of a slow start the demand for potash remains extremely strong and I still see an opportunity to deliver record tonnages in potash for Q2 and to close out the bulk business office revenues were up 9% volume up 19% at the supply chain executed very well, and we lapped Port maintenance issues that had occurred in q1 wage 2020 and the merchandising front turning to energy chemicals and Plastics portfolio where we saw revenues and volume decline about 19%
Including crude ECT volumes 6% and the quarter driven by improving export and domestic demand for lpgs. We expect to see continued strength ECP excluding crude as the recovery from the pandemic continues in this area in demand returns to more normalized levels.
As a reminder q1 was the last quarter with tough crude-by-rail comps in 2021. We moved 36,000 carloads of crude and in Q2 2012 we moved about 7800.
I expect crude volumes to continue at a similar Pace into Q2 as we saw in q1 and then to gradually improve as we move into the back half of the year.
Forest Products volumes are up 7% in revenues were up 8% a record q1 for both metrics as we continue to see strong lumber prices and significant demand. And paper products. We have recently added about $125 Center beams to our Fleet which will continue to drive positive Trends as we move through 2021 revenues declined 12% volumes declined 10% Largely as a result of lower frac-sand volumes driven by the reduced drilling excluding frac-sand Thursday, we're positive.
And the automotive front revenues were up an impressive 32% in the quarter while volumes are up 56% Again, this Auto area is an excellent demonstration off the power of the unique customer Solutions. We've being able to create for the oems. Well manufacturers have most recently been challenged by the chip shortage. We've focused thoughts are on those vehicles with high demand, which are manufactured on our lines. We expect some continued impact to production in railroading volumes over the next few weeks. However, current customer forecasts show Improvement as we moved through May.
I continue to expect to grow Auto revenues at a strong double-digit pace and I see opportunity in the future for further utilizing our land Holdings to grow in this space wage. So finally in the Intermodal side quarterly volumes were down 9% on the domestic Intermodal front. We had a record first-quarter March was an all-time record month and despite COVID-19 related restrictions. Tightening across Canada. We see consumer demand continuing to be strong. We are pleased to announce a new long-term contract with Loblaw that will expand our relationship with Canada's leading Food & Pharmacy provider. We are ramping up our domestic and international service in to Atlantic Canada and look forward to this highly competitive service offering being a strong growth engine for us for years to come.
So while the international franchise did face some challenges with Port congestion and container storages and and we can do any comps we expect this to improve as we continue to accelerate volumes with Maersk. We laughed you owe any contract the Port St. John calls continue to ramp up and our exclusive Vancouver transload comes online here in 2 3
So let me close by saying looking for it. I see strong opportunity across all of our lines of business and I remain very confident in the underlying demand environment my sales and marketing team remains laser focused on executing those specific marketing Play books and delivering our pipeline of opportunities that build unique customer Solutions off the optimize our land assets and it's Keith said continue to generate that sustainable profitable growth.
So with that.
Turn it over to Nadeem for the financials.
Thanks, John and good afternoon. I'm proud to present our q1 results which highlight a record q1 operating ratio for CP of 58.5% are exceptional team of railroaders. Once again, none of their resilience and the strength of the model by navigating the challenging conditions in February and then producing an all-time record month in March this despite plenty of opportunities to make excuses is giving weather Rising fuel prices higher stock Copic rules, and the negative impact of a stronger Canadian dollar the team delivered these record results, which is a testament to see peacocks and abilities no matter what the environment
You'll note that we have adjusted a total of thirty-six million dollars and transaction costs related to our pending KCs transaction thirty-three million for purchased services and other than 3 million below line in other expense. I'll speak to the adjusted results today.
Overall the adjusted operating ratio decreased 70 basis points to 58.5% driven by strong operating efficiencies, including record train lengths and train weights month and a recognition of the gain from the agreement with the tollway in Chicago.
Taking taking a closer look at a few items on the expense side comp and benefits expenses up 2% or 7 million versus last year the primary primary driver of the increase was higher stock-based compensation of 13 million driven by a higher share price in the quarter fuel expense decreased six million or 3% primarily as a result of lower foreign exchange all set by higher prices this quarter. We achieved a record q1 fuel efficiency as we continue to improve our operating performance and modernize our locomotives to change and fuel prices that $37 negative impact operating income in the quarter.
Equipment rents was down three million or 8% as a result of efficiency improvements year-over-year more than offsetting increases in rent expense from automotive automotive contract wins home depreciation expense was $200 million increase of 5% as a result of a higher asset base.
Finally purchased Services was $241 million a decrease of 71 million or 23% Again. The main driver of the decrease is the game related to closing the tollway transaction page moving below the line as expected other components of net periodic benefit recovery was up ten million reflecting lower interest costs related to a decrease in discount rates in Quebec tax expense decreased six million or 3% primarily as a result of a lower effective tax rate rounding out the income statement adjusted EPS grew 1% to 448 in the quarter on the phone next slide moving to precache we generated strong cash flow and q1 with cash from Ops increasing by 19% or 93 million. We continue to reinvest in the railroad and are on track to meeting one point five five billion guided capex been for twenty. Twenty-One given the strong volume Outlook and twenty Twenty-One will benefit from our decision last year to pull forward capital when we saw software demand wage.
resulting from the pandemic that is
Vision in the solid execution by our operating team and the engineering team allowed us to take advantage of the increased available track time the efficient Capital work in twenty-twenty has the network in fantastic shape to capture the ROM volume of like John highlighted and won't need incremental Capital spend our proposed 521 share split was approved by shareholders at the AGM this morning. We were taking steps to implement Oxford and expects to complete in May the sheriff's won't encourage greater liquidity for CPS common shares and provide enhanced opportunities for ownership by a wider group of investors off our balance sheet and liquidity remains, very strong with leverage of 2.4 times adjusted net debt to adjusted ebitda. Do you need to pay down short-term commercial paper with excess cash share buyback program remains pause and are committed and we are committed to our Target leverage range and strong investment-grade credit ratings. We finish the quarter extremely strong and it brought a lot of momentum in 2 Q age.
The demand environment is set up. Well led by our self-help story. I feel convicted you realize guidance. We set out in January and reiterated today with that. I'll turn it back to Keith to wrap things up before we get into Q&A the thing maybe I'll I'll close with where I started the results sort of speak for themselves or undeniable. I think overall given a challenge is that we faced to the Compares that we faced, you know remind the market last year in 2020 a very unique story. We had memory says 9% off every year and against the toughest Compares in a very tough environment, especially the same that all of our peers in in the industry face for this result to be enabled by this team. I'm extremely proud of it off that I think we said enough and let's open it up for
Some truthful discussion. Thank you. If you would like to ask a question simply, press star and the number one on your telephone keypad. If you would like to press the pound key Bank be highlighted. Please limit your question to one. There will be a brief pause we can pause Q and A roster.
Your first question comes from line of body chamoun from BMO your line is open, please go ahead.
Okay, thank you. I appreciate the time and taking the time to explain through this keys. So quick question, maybe on the synergies wage know that you've had kind of you know, multiple weeks here to talk to customers maybe understand on the ground a little bit more. But this means how do you feel about that Synergy outlook on life you do you feel that there is a kind of significant upside to what your expectations were.
Absolutely understated big opportunity for these two teams together to create overachieve. Well beyond what we assumed in our deal.
Okay, and maybe just a quick follow-up on that like, you know, ultimately it's it feels like this may may come down to who win the home of customer is at the end of the day to sway maybe in the STD mind which way they should go is that is that how you see this playing out?
Well, I think that's obviously it's critically important. I'm not going to say it's not because if the customers are against you, you know, the customers who we serve the stb is going to listen to that song which is why I feel so good about our deal. The customer is overwhelmingly for us, but when it gets down to truly comparing the deals, you know, if you're going to push myself and I've tried to along this whole process but myself and and Patsy put myself in the KCs board of directors seat. It comes down to do ability. It comes down to money. You get the deal done. It comes down to risk that you have to embrace to realize the value for your shareholder. And the truth is that the trust the volt trust is the trigger here the new rules.
Mean, let's see. It has no choice but to have it's voting trust approved by the stb and their proposal under the new public interest test unlike c p c n can't pass the test because ultimate regulatory approval of its deal is so complex and uncertain that's undeniable.
Stb will not want KCs to go into trust but so much uncertainty about whether it comes out as part of c n or not.
And I believe the truth is know what they're bored or their shareholders.
That's what it comes down to Kendall be done can the value be realized and there's only one answer that truly meets that test not to just one.
Thank you. Your next question comes from line of Ken Hector from Bank of America, please go ahead.
Hey great, good afternoon Keith if we could just focus on your performance. Maybe just talk about the your outlook now on on volumes given the improved economy, or maybe it's for John. I guess, you know you you would talked about upper single-digit, uh carload an RTM growth. What what's changed? Are you seeing more acceleration to that given the exit and March maybe just talk about, you know updated performance, and I don't know if you want to throw in maybe a margin outlooks on on that as well. Thanks.
Hey Ken, so, it's John. I'll I'll take that in and let the others jump in here. Yeah, extremely convicted High single-digits. That's that's the the path there is dead. It's still directly. We're marching. I was super pleased with how January got launched of course February was a little bit of a a struggle but I I expect to see us perform. Well, we're off to a good start here in April. I expect you to to be strong Q3 double-digits and then is is we move out to close out the year off and convicted, you know, the the environment just about across all lines of business continues to be to be strong and recovering, you know, we're watching obviously a little bit of lip with this with this chip shortage. Uh, but but again, if spoken all the audio industry over the last couple of weeks around the opportunity certainly with the the KCs mergers
and in in certainly
Talked about this this this chip situation and I think for the most part most of of the OEM see some recovery in that. So I'm optimistic in that but you know, the grain front continues to be to be strong for us, you know, we're starting to see maybe a little bit of of of you know, Dwayne of stocks in certain areas across Canada, but nothing that I see would would would really impact us here in in Q2. So I remain optimistic there as I said, the the potash opportune I can is tremendous in in in Q2. There is a a been a lot of pent-up demand in that space and and actually the camp attacks for Cass versus what we moved into one or up about 70% So there's a lot of opportunity on on that front and you know what I we're only going to gain mome.
On the on the Intermodal side of the business is business is ramping up. We're halfway gloyd is expect to see press release here in in the coming weeks down there first port-of-call into into Saint John as I spoke about our domestic Intermodal business is really starting to ramp up into that Marketplace too. So all that to say still a lot of faith in in excitement on on what 2021 holds and just on the margin side. I mean, we're extremely convicted we talked about in January. I'm getting to a mid 50s type of operating ratio and and we're still on Pace for that, you know, despite the polar vortex and and it's hot February and and obviously fuel prices there have been challenges for the industry in terms of the the overall operating ratio headwind that that creates but but that's not an issue for us will overcome it off.
Was was that big headwind in in q1 as well? So and we're not worried about headwinds feel more convicted that we have a a path to potentially even hidden that that Double Nickel.
Yeah, we could see it can even even through the snow. It's the sunshine of the day. It's a little bit clearer.
All right, we had hail here. So appreciate the Insight. Thanks guys. Your next question comes from the line of Brian ossenbeck from JPMorgan, please go ahead.
Hey, thanks. Good afternoon. Appreciate taking the question. Maybe just to stick with the fundamentals for one more here. He just talked about the capacity in your confidence and have that capacity for growth of projecting here. Maybe even if demand is is bit more pent-up than you think obviously have some pretty big numbers in in products that that John just mentioned but you can address it from both the headcount perspective how the hiring is working since you gave the December bonus and then just from the network side. Can you really keep those trains at the same length in size as volume comes back?
I'm
I'm not concerned about capacity, you know in the answer is is yes when it comes to train length and
IND train size and weight which all you know leads to the productivity that that drives your crew starts at drai's your crew productivity. Obviously your cost. You know, I say that I look at second quarter and off in the first quarter is being surpassed already train Lake. This increase during weight is increase productivity on cruise starts rtms per employee locomotive productivity, you've got locomotives that we have prepared for an even higher level of business given what we had assumed to be if we go back in history would be a different demand environment in the Fiber space. So we have that in our back pocket. We have capacity. Obviously. It depends on when it comes and where it comes we control the control that we're careful very careful not to over-commit and under-deliver and Thursday that's value destruction. That's not value creation. But resources are not an issue.
Thank you. Your next question comes from line of Allison Landry from credit Swiss, please go ahead.
Thanks. So keep you you suggested that at four times leverage at CNN is locking up Capital that could be needed for Investments to capture rope and synergies off. She interprets that as a comment, um, as sort of unwillingness by CP to take up leverage, you know to a similar range to come closer to the Sea ended and I guess I mean, are you willing to raise your initial bed or is your view that you don't need to because of the regulatory risks? I think you just answered.
The last question when it speaks to leverage its 4.6 is is what I was speaking to and I just frankly don't believe that's the right value proposition for our shareholders to put our balance sheet risk to use all of our capacity on our powder to take away our ability to to respond with shocks to the market. I just don't think that's a healthy place.
To go to at this point in all honesty. I don't have to think about that because it's not a true alternative. That's a hypothetical situation. It's not a real deal. As far as I'm concerned. It's it's kind of Fantasy Life So my answer would be it's nothing that we're considering at all.
Thank you.
Your next question comes to the line of Steve Hansen from Raymond James, please go ahead. Yeah. Thank you Keith on just detailing on your your crystal clear off on the last question in the outside scenario that shareholders go the other way. How do you feel about your growth prospects? Otherwise, I mean, do you feel like you've still got lots of growth prospects in the absence of the KSU? I mean is this a deal that you view as absolutely essential to get done or or you come through with not having it? I think we've demonstrated that we can create our own unique success wage creation store. We've done it without it. Obviously the deal the value that would create.
You know compared to what we could create without it. It's two different outcomes.
I'm not going to suggest it's not that'd be disingenuous to suggest that but I would say that this railroad is shown its resiliency. We've got a very capable networking Canada. At least now when you get the states.
But the dynamic change that are very unhealthy way in that space then obviously, we've got a responsibility to grow and create value and provide options for our shippers. So it would suggest perhaps we have to look at alternatives.
And in all honesty we thought about those we talked about those history says we've even considered those and if you look at it in comparison, the truth says that those potential hypothetical scenarios are often complex and the one that's being suggested by seeing with KCs.
Indeed. Thank you for the time. Your next question comes from line of Chris Wetherbee from City, please go ahead.
Yeah, he thanked see that from you guys. Maybe I can pick up there. Can you elaborate a little bit on that? And in terms of potential Alternatives? Obviously, there has been that discussion in the past several years ago. How is that a less complex transaction? You sort of help us sort of think about that a little bit.
Well, I just it's simple math I think about all the overlaps and I spoke to some with the proposed seeing KCs and what that represents from Pro service and pro competition versus the Alternatives, you know, when you can run a bunch of scenarios combining us with, you know, either the railroads east of the Mississippi. These are all hypothetical discussions and I'm not suggesting that it's necessary. I'm committed to this deal and I quite frankly think that this is so unique and special and value-creating this will happen. This is going to be our reality. This is going to be our future and it's exciting. So I haven't wasted a lot of time looking at those other Alternatives and certainly don't think I'll get to that point where we have to but if we did, hypothetically I think there's a case to be made in a responsibility that will have Chris. We'd be the smallest plus one in that scenario.
Okay, understood. Thank you for next question comes from Wireless Justin long from Stevens your line is open.
I wanted to ask about the the Synergy Target. You've laid out. Obviously the the commentary around that is it airs on the side of conservatism. I would guess in the last month or so as you've acted feedback from some of your customers, you know, we can see the results that it's it's overwhelmingly positive. Is there anything you can share in terms of what the upside opportunity looks like on synergies? Are we talking closer to a billion dollars just just some more detail around that and and maybe where you see the opportunity off the tank are mental by geography or a particular commodity group would love some more color around that.
What I'll let John speak to the revenue side, but I can tell you now on the call side. We took a very conservative approach and this isn't about cost-cutting a rationalization. This is not value creating an and it's about growth but even in a growth world, we can become and will become more productive. We're going to run more fuel efficient longer trains. We're going to gain efficiencies on local office productivity. We're getting close the gap and gain efficiencies on car miles per car day, you know, I heard Sammy Mitch and locomotive productivity last week on their call and I just thought the loan if I look and compare and I think about the unique value this creates I look at our numbers and this is all public information. There's a meaningful opportunity to close that's going to create Locomotion without Capital expense. Think about it if you do the math,
30% what's 30% of 950 locomotives? You're talking about three hundred plus locomotives of
The capacity just about the coming.
More efficient. What's that worth?
Two million a piece I'd say that's pretty material value. And again, that's just one instance. You know, these things don't just happen. It takes hard work. It takes an ability to execute which we have a contract record and ability to do and I I just believe because of my experience and and having lived it and having done it and haven't shown it with the teams that I've been blessed to work with that kind of value creation is substantially understated that still allows us to grow and add jobs and create a whole lot of value for the synergies that are driven by the revenue side effects on one or two comment more color on the revenue synergies. Yeah. So the just first and foremost, I would say, yes, certainly. I think the synergies that we've laid out I would characterize is conservative achievable. But but let me just be clear. I've been personally involved in in working with the KCs railroad all my career birth.
And and spend a lot of time Marketing sales in the trenches with with those for folks looking at opportunities. Um, uh, I have to tell you they they're conservative and achievable but we've done that for a reason. We're also being realistic. We we know the competition is is is going to bite back in certain areas, you know, we're going to have to let our product development to to to realize those those synergies in those opportunities. But but all that to say it's it's much more than one or two Commodities is I see the the synergies it's across all the Commodities. It's not just Intermodal Automotive play for for CP. Certainly. We think there's a tremendous opportunity in that space that keeps spoke to earlier. There's opportunities to take big trucks and the road and add that fourth competitive route north south. Um it it is opportunities in that in that auto space that will never be achievable wage.
In fact the c p can't Kansas Kansas City Southern combination doesn't flake take place from the the grain business as you can imagine. I've spoken to hundreds of customers over the last month on this opportunity and the the opportunities that have uncovered themselves off. You know, I'm not going to put a number on it. Is it two hundred million? Is it five hundred million it it certainly could be it's it's out there the the egg industry alone to do grow utilizing our product or eighty five hundred foot model with the KCs existing customers today, but but also working on investment and opportunities on a on our existing network is a huge opportunity just in itself. So I feel again the numbers we've laid out are very achievable and wage.
And I'm excited about the opportunities.
These customers have brought forward over the last three to four weeks.
Right. Thanks. I appreciate the time.
Thank you. Your next question comes from line is Scott group from Wolf research, please go ahead.
Hey, thanks afternoon guys. So Keith. I'm sure you've had conversations with Pat or or or the case. He has for the last two days off. Do they share your view about sort of cutting night and day deal certainty for one deal versus another. So it's one question and then secondly, you know, if for whatever reason the the wage is overturned.
Do you still think the from a voting trust perspective? It's so night and day your your offer versus Bears and then just you know, if you think that a c p Eastern package deal is achievable. Why isn't that more attractive if it even further expands Network reach a few things that are thank you.
I'm going to make some notes got I might come back to him for some clarity on that. So let me start with the last c p c p Eastern r l I'm not focused on that. I'm focused on the KCs. I'm focusing the unique.
Simple pro-competitive Pro Surface Pro customer in D and one and only transaction at this industry that creates this unique value. Why would I think he's I'm not looking East I'm in the one partner and we have an agreement. Yeah, so to speak to that about have I spoken a pad. Of course. I've spoken to Pat. We we're in a partnership where we're moving forward to pursue this, you know, the value creating deal that we both believe in and until or unless they're bored decides differently. Once they've looked at the truth and weighed in the facts and made their decision exactly what we're focused on so, they'll be no discussions on CPS part with KCs board about anything other than the value we're creating uniquely for our shareholders that they unique I get to enjoy as well as our customers as well as our employees and that's what's so unique about this. They see the value in that we see the value in that that's been a key principle from the very beginning with Pat and I set down School.
And we talked about what this could mean, you know how this could be something transformational uniquely how this could be something that checks all the boxes. It's all the customers. It serves competition. It serves the employees it serves and enables growth that's will be on paralleled. It serves Commerce never at a time where it's needed more in a very unique way. So that's what we're so excited about and then that gets to the point of your first question about should it be overturned? We don't get the special consideration. I think that makes our value even more compelling cuz the reality is then it's sort of bulls down to the trust is the Trust In The public's best interests and there's only one combination and it's the only one that's been agreed to that truly passes that test.
the other could never be approved in my assessment and my view based on the
Facts, you know, you can think about the doj the doj wait in about their concern. It's institutional concerned about trust overall, you know, we can debate about why it's necessary. It's it's part of our image. It absolutely is necessary. There's a difference but when you compare these two deals and you compare the fax the doj is number one concern and the letter that they rode and they'll find don't is preserving competition while interest but we don't compete with the KCs. So if you get to the bottom line, the undeniable truth is that's a fact we're in the end. There's no overlap now compare and contrast the truth to the other proposed combination. Yeah and Trust which I would suggest because of that will never get to trust. It's undeniable that they they compete they absolutely compete KCs and seeing compete today.
Well the 65 miles they've talked about and all those other locations. They haven't they compete. So how do you protect competition if you really concerned about it and I would suggest the true says the doj is
if you allow a trust to be approved that has an anti-competitive.
Basis to it. It's just that simple and I think people are missing that Scott. I really do appreciate those thoughts. Thank you. Thank you Scott off. Your next question comes from line at a meeting from Deutsche Bank. Your line is open. Thanks Keith years ago. You had said that the fulcrum or the driver further consolidation in the industry. That would be the need for basically. The need for capacity would be The Driver further consolidation wage. Do you think we're at the point now today in terms of this, you know hyper dearth of capacity and and and and more importantly do you think that's a a big consideration by the way, just given how little capacity there is out there relative demand and the Improvement in in that Dynamic that comes from the fluidity of a point-to-point network and just if I could time
On one more question related to that when you look at other Alternatives, and maybe you won't need to but if you look at other Alternatives, would CP need to be the majority shareholder of the resulting entity and the management team. Is that an important consideration for CP and for you? Thank you.
My consideration when it comes to see p and any any deal that I would ever consider, is it fair to our shareholders? Does it create value for our shareholders and do we fairly share and that was the principal in that are obviously in in our evaluation of this deal that we're talking about this combination. We're so excited about so let's go back to my thesis and and years ago years ago about a timing again context matters years ago. I was sitting in a seat as an operating officer and initially as a CEO both at this Railway as well as this is real way and I had to deal with Chicago and the reality is there wasn't enough capacity in Chicago at that point in time.
Whether you go back five.
Years ago back eight or ten years ten years says there was only one railroad that created capacity with PSR five years says there was two and now in today's world we have found but one that have adopted this operating model that creates capacity and creates long-term sustainable value and creates an opportunity contrary to some naysayers belief to create cash flow to invest back into infrastructure to create additional capacity in a safe rail operation and the case study. That is our Railway.
So is that set today? And I look at it. I look at Chicago. There's been a lot of capacity created in Chicago. Is it infinite capacity? No, but does it delay that thesis of becomes didn't have capacity of drives consolidation. Absolutely undeniable. Yes. I don't think that's a discussion for today. I don't think the STP needs to worry about a capacity Play House need I think what they need to think about is competitive balance. This bill does not challenge that this this deal you could argue cements that
This would be the gold standard of the hurdle that you would have to meet or exceed to do a deal number one, but it doesn't create imbalance because again, it goes to the back of this. We got the two smallest railroads combining that would still be the smallest railroad. How is that a threat other than a threat of competition to any of the Compares? Let them answer that question. The answer is it's not
Unlike this proposal at undeniably would be it would make the third largest railway and you can minimize track miles. We're talking about reach. We're talking about networks. Yes, ma'am. Perhaps mileage is isolated to the US but this isn't a US discussion. This is a usmca discussion. This is a three-country North American Commerce absolute truthful discussion. You can't diminish.
The connectivity of that in the importance of that and just focus on one little isolated piece. That's not truthful.
So again, I think if I were in the stb shoes and I'm looking at facts and I true I believe that to be true. They will those facts are going to matter and they're going to carry the day and they're going to carry the office because it's true.
Yeah, and and there's a lot of talk about the eastern rails as Alternatives, but we very rarely talk about the Western rails, and there's one in particular that has very good penetration into Mexico. Those all time. It is in terms of as you think about the possible possibility of a c n k s e merger kind of a competitive competitive kind of dynamic being Thurs penetration in Mexico through one of the West Coast rails, that's it's not a possibility. If it's not one that I would ever consider, so it's that's just a hypothetical question and be a hypothetical answer and probably that's everybody's choice to comment on and I apologize. Okay. I thought I'd try. Anyways. Thank you very much. Appreciate it. Thank you.
the next question
Sydel from cold, please. Go ahead.
Operator I'm keeping team. Thanks for taking the question and advice job in the quarter. But I'm going to focus obviously on the transaction that's on everybody's mind. You know, you seem very certain that there's a lot more overlap in the transaction, you know where your Canadian counterparts up there said that was only sir. I believe five customers and nine plants on 65 miles of track. Can you give us some numbers behind? Sure. Just how may as you believe are at risk in this potential transaction if CNN KCs were to come to life.
You know what? I John you can probably look at it. Like I said earlier I didn't just make up that Hunter number. There's over a hundred combinations of
CBC in today that would be impacted by that but let me go back to some real facts and think of the reality the reality is I used to be a trainmaster if they Memphis, Tennessee on the New Jersey Central Railroad.
Black 1996. I don't know that was it's been a while ago twenty-five years ago, and then I went from
Memphis Tennessee on the IC to Jackson, Mississippi, as I said earlier and my territory covered down the mobile so I know the lines to mobile. I understand that in Hattiesburg, Mississippi or going down to the coast in Mississippi the KCs cuz operate then and can operate now down to serve that Gulfport also know that today the KCs has rights and an opportunity to operate customers business say from Kansas City down to mobile.
I know tomorrow at this deal were to be approved or suggested that that would exist. Go to New Orleans. I spend a lot of time on that road south of Jackson going down to New Orleans Baton Rouge Geismar Destrehan. I know the same things. I know the towns. I know the business to suggest it's isolated to five customers that are dual served today. That would be single line served tomorrow in the bath guys. Marry again ignores New Orleans at norms, the competitive options ignores the disadvantages the pain to the customers. It's just the reality. I don't even have to get into the the number crunching which would be done and those will show the facts to be true. I know it because I lived it. I understand it. I lived there I worked there I worked for those people. I understand the KCs in that space. I understand in that space I would suggest as well. If not better than many people in this industry.
Keith I I appreciate that color and so I guess based on your comments you would you would be surprised if there wasn't a bunch of ship or push back to this potential combination.
Hi, I surprised would be an understatement you're getting shape of time.
I think time will show you very quickly many people might be opposed to this.
Appreciate it guys. Thank you.
The next question comes for the line of Brandon oglenski from Barclays, please go ahead.
Hey, good afternoon. And thanks for taking my questions. So Keith, I guess I want to follow up on that. You know, the The Interchange that you talk about because the physical overlap is, you know, rather short. I'm not trying to spar with the shack in any way but you know, you did say there's a lot of instances in the midwest where you'd go from maybe three options to in the CP option was ultimately leveraging case. You have to get down south, you know, is there an ability when a another let's say that you have a deal to go through what's their ability then to block those interchanges. Is that a real concern for shippers in the market?
The block the interchanges, you know, there's a difference between black and interchange and being a friendly interchange.
So I would suggest it wouldn't be as friendly as it is today. I can't imagine a world where today we operate. We actually co-locate and I think we spoke into this. I was had the honor of partnering with Pat last week actually went to our joint agency in Kansas City and met with our employees. We did a town hall. I can't imagine a world where are trains. Our crews would come into our primary competitor wage which eliminated our friendly partnership into the yard and Kansas City and that being good for any customer or we you know, red carpets not going to be rolled out and we're not going to be warmly received either in life and raid offerings and combination or in reality just not
Just not a realistic possibility.
So if you go through that Gateway today, I would suggest you'll be impacted. I add the keys comments. Just think of it in terms of a propane shipper coming out of Edmonton and off and and frankly. We we do a lot of our business out of that region down over Kansas City to two connections with the KCs to get into Mexico from you know, there's an awful. I wear tomorrow Sienna would have a direct route. I certainly if I'm one of those shippers up there I get I would be very concerned about loss of a Gateway or loss of an opportunity, you know versus the having the opportunity to compete on a single line haul that the C pkc route would provide those shippers.
Say that that competition Works important that's not an aspirational goal of us. That's that's the desire to be able to create competitive alternatives for our customers so that they can reach new markets and then they can grow and they can compete in that market space. They reach we welcome competition at this Railway. We think it's healthy. We think it makes us better. We think it makes being better. We think it make you be better to make seeing better off. It makes the industry better makes us stronger competition is good. Why be afraid of it?
Step into it. Don't try to eliminate it. Don't try to Snuff it out.
Don't try to to buy it and make it go away.
I don't try to damage someone that's trying to create it just because you think you can I just don't agree with that fundamentally or principally and I don't think our customers will either.
Thank you. Your next question comes from line of Benoit Poirier from Desjardin Capital markets, please go ahead. Yeah, good afternoon gentlemen, could you talk a little bit about the pricing whether it has strengthened given the tight capacity and how we should be thinking about the yield to evolve in the coming quarter in light of the business makes few life and affects. Thanks. Sure. I'll I'll take that John here. So, you know what? I saw good momentum in Q4 in terms of our renewal pricing. I can tell you that that accelerated. So when I say 3% plus type numbers into q1 and and I don't see that changing as frankly. I I I think that continues to accelerate to those upper end of those ranges that we have talked about, you know, do you think about fuel an effects? Um or yield as a whole? I think the
We we continue to sort of see Improvement in begin to sort of lap some of those headwinds as we as we move through the year, you know on the on the mix front page, you know, ultimately I I see that improving a little bit too in in probably kind of coming back into that that more of that flat range and and and and I'll even speak to you know, sort of the the liquid damage isn't that I think that sort of moderates itself through the year. So so overall I see the sense for RTM gaining some momentum is as we move through the back half of the month.
Thank you very much. Yep, your next question. Next question comes from the line of David Vernon, please go ahead. Hey guys. So I just want to ask the process question is this is this alternative offers being neither reviewed or or not, depending on what the case is Ford's going to do. What's your expectation for the stb in terms of moving forward with its determination on whether or not there's going to be a waiver whether it's going to be the the transactions going to be under evaluated under the waiver rules or and separately off they do you expect them to come out and say anything about you know, your proposed voting trust structure while this other deal is out there. I'm just trying to get a sense for kind of what the what you're hearing from your lawyers around. This is sort of a process while this competing bid is out there.
I think your words best describe it it's working process. And and I think it would be ill-advised on my part to predict but the stb may or may not do I think are facts are very compelling the case is they're dead. You know, I believe that the facts matter, I believe that in two thousand one when that carve out was created. It was fact specific and our combination supports the fact that enabled that carve out. That's what I believe to be true. And ultimately I know the truth is the stb will make that final decision and we believe in the facts and we're going to continue to work with them. They're Sans proposal has no bearing in my mind on our fax. It's two different stories two different set of facts and I think that matters
If I could just kind of stick.
Upon their you know, you know some of the facts that maybe are not on my table right now would be some of the things that Canadian national could propose to maybe address some of these competitive concerns are you or is it your position that those just complicate it and make it harder to do or that maybe those those remedies that you would traditionally look too in a situation like this would not be effective. Like, how how do you think about sort of prejudging the deal without looking at the the potential for for remedy system is these issues that you're pointing into I'm focused on the facts of our deal. There's there's there's no overlap. It's simple it's and Dan.
It's all positive on service. It's all positive on you competitive opportunities. There's no negatives. There's no 3 to 2. There's no 4 to 3. There's no to to 100 is a pretty powerful number Thursday on deniable numbers. So based on those facts. That's what I judge my view on in comparison. And again, I'm not even going to comment anymore. I've told you what the truth is relative to the way I assess that other deal in the complexity that it represents and and those facts are undeniable and and ultimately it's the stbs job and they're very capable of assessing the true facts and making their determination and I just have faith in that process and I have faith in their their professional capacity and their abilities they're talented group of folks.
Your next question comes to a line of BS, please. Go ahead.
Yeah, good afternoon, Keith sweet. You've obviously given us a pretty compelling framework for why you think they're they're regulatory approval is stronger for you know c p kids you off but I think if you look at it and say, you know, the first hurdle is for kids whose board and shareholders to to choose which deal and I've heard that both sides seem to believe or trust would be approved. So it seems to me like with that logic I guess I'm I'm struggling with why kids to shareholders wouldn't choose simply the highest price range because all they need is to get close, you know, a voting trust approval and then they get their money. So I don't know if you disagree with that logic, but you know, if that's the case, reasonable, why wouldn't you raise the bid or you know, would you raise the bid and just do it with stairs instead of taking a balance sheet Leverage?
It will all those latter questions time. We never get to that because it all stops with deal certainty and with trust approval certainty our deal represents something available. There's certainty based on the fact that the stb will ultimately opine own or not in our trust being established that's supports our deal that supports our ability to get the trust approved to get to the value is the next the next concern that their board of directors. They're fiduciary concern would be dead. Now if I look at and I put myself in their shoes and I'm looking at it in fear deal that represents uncertainty. I don't care how much value you might suggest to me that's on the other side of the fence if I can't get to it. I don't get time is it?
I don't.
No any other clear way to articulate that?
It's it's a fantasy unless you believe that based on the facts that they would meet the public interest test when it's applied down and ruled on and do basic facts about the stb. You can't believe the value and I just don't believe it the facts don't support it. So a facts and Truth matter it's not achievable. So you never get to the value so weird zero.
Okay, so your your points not so much that the merger can't be improved with the end. But you you think you can even improve a voting trust and that I guess that's your point. Yeah, you don't you don't get to the root of the substantive review of the merger and to get beyond the trust and the trust is when the KCs shareholder would realize their consideration that considerations not realizable if you don't get them approved.
Right. Okay, and what you you commented on it earlier question about raising Leverage. Is it just to make sure I understand your response. Are you saying you're not considering raising the bid or you're just concerned about raising the cash portion? We're not considering changing anything with our bed. We're focused on getting our deal which represents great value for the CP shareholder off the KCs shareholder. We've agreed to this we have an agreement. That's what we put forward in front of the stb based on the value of creates. And that's what we're focused on. There's no need to discuss raising leverage. There's no need to discuss paying more money. It stands alone on its own merits. There's nothing to compare it to so why even have those discussions
not going to
Unless the case he is Bored gets to a point and they decide differently they have it. So I'm not even going there. There's no need to and based on the facts. I don't believe they will. I think the decision is pretty obvious. The conclusions are obvious that I don't really other clear way to draw the scenarios out.
Okay, but but if they if the board came back you could you could consider it a different approach. It sounds like I'm just not going to comment on a hypothetical just just can't I'm not going to give you energy just not going to do it. I'm focused on the value of this unique deal that we've agreed to creates and I would suggest that's what matters that's the truth.
Right. Okay. Thank you for the time. Appreciate it. Thanks Tom. We ran out of time. I turn the call back over to mister Keith Creel.
Okay. Well again, thank you for joining us today. I hope that
Fact-based truthful discussion has helped clear some of the air. I think that's our responsibility. I certainly feel that responsibility in this industry to speak the truth that the strengths of our deal and what the value uniquely creates as well as the risk that are associated with Alternatives that are being suggested.
Forward to the second quarter results. This company is started strong in spite of some opposition the second month of the year February was a challenging year, but the Outlook looks good. We still see opportunity for marja movement single-digit.
Double-digit as we progress into the year finishing well within what we've got it to the end of the year, which is going to be a result. Our shareholders will be rewarded for the market will respect again based on our track record.
So we look forward to seeing everyone soon stay well.
This concludes today's conference call you mean a disconnect.
Hong Kong