Union Pacific is the largest railroad in the US, and they are also strongly against passenger rail. Concerning Amtrak, UP has been a pain in the ass when it comes to requests to allow for more service. For example, when Amtrak sought to increase service on the Sunset Limited (New Orleans to LA) from 3 times a week to daily, UP demanded $750 million in ransom money. This ludicrous amount was simply their way of telling Amtrak to bugger off. The reason behind the astronomical amount is less to do with logical business planning and probably more of political/ideological grandstanding.
However, Amtrak’s Sunset Limited is small peanuts compared to California where the state plans to build a high-speed rail line (HSR) that will run next to UP rail lines for the majority of the route. The problem is, because UP is against passenger rail, instead of helping the HSR program by working together to use excess land (land which was originally given to UP by the government), they have taken the opposite approach and banned the HSR authority from using any of their right-of-way (ROW). This has raised the cost of HSR by a huge amount, because instead of using vacant land, the authority will be forced to purchase land that is occupied by businesses and farmers. The land cost isn’t the only added expense. Bridges have been built over the UP rail lines leaving completely clear the entire piece of land they own, even the unused area. Because HSR will have to be built outside of the UP land, every single bridge will have to be rebuilt, or the line will be forced onto very tall viaducts. Neither choice is a good one, and both are remarkably expensive.
California (and Amtrak) has chosen to shrug their shoulders and deal with UP’s refusal to work with them by accepting the huge costs that will result from duplicating the route.
A few days ago, I mentioned how a possible way to save money would be to reroute the HSR away from the UP line, at least through Fresno.
Capitulation to UP’s ridiculous demands is not the right strategy. What California should do is simple apply the free-market approach to the UP problem.
Imagine for a second that California and the HSR authority (one and the same really) were to be run like a business, a business headed by a corporate man like Mitt Romney and his friends at Bain Capital.
When a corporation sees a huge potential investment opportunity, like HSR, they do everything they can do build such a project quickly and for the lowest cost possible. If there is an obstacle, like Union Pacific, in the way, a corporation would not simply shrug its shoulders and deal with the massively higher cost. They would seek to eliminate the problem. A quick way to eliminate a blockade is to buy the problem out.
Here are the players:
The State of California being run like a business. California Inc.
California Inc. has a market cap of $1.9 trillion
Union Pacific, a publicly traded company.
Union pacific has a market cap of $53.28 billion
It’s not even a competition.
What would California Inc do with a UP problem?
Buy them out. A hostile takeover if necessary. All that’s needed is 51% ownership so that UP suddenly becomes very, very passenger friendly. Including the transaction premium, $30b will allow California Inc. to control UP. That’s peanuts for a conglomerate like California Inc.
California Inc. currently has a passenger rail subsidiary (Amtrak California) and expanding into the freight sector makes perfect sense, even if only for the value of the land held by UP.
$30bn is less than 1/3 of the projected cost of HSR. Such an investment would be remarkably prudent, because it would lower the cost of the highly profitable HSR project significantly. And the best part is that UP would continue to run as they do currently, their profitable business would not be reduced or eliminated, only their corporate policies would change. Using UP’s ROW for new passenger tracks would not hurt their current business at all.
The take-over would be a good idea for multiple financial reasons.
1) California Inc. would be able to take advantage of the profits UP would continue to earn, and direct them to whatever part of the business which needs the investment. For example, the initial HSR project costs, including the UP buyout, could be funded by future UP profits. Money could also be directed elsewhere, like California’s R&D department aka, the UC system.
2) The cost of HSR will decrease significantly, justifying some of the purchase price, because viaducts and such won’t be needed. This will make a profitable project an even lower risk.
3) UP could be sold after a 30 year period, covering the initial expense, and possibly resulting in a very nice profit for California Inc. The future is bright for freight rail, and California Inc could certainly use a profitable subsidiary like UP under their brand portfolio.
And not just California would benefit, but (national) Amtrak and such would as well, because California Inc. would fire all the overpaid passener-rail-hating-executives and put in place a much friendlier executive board. Indeed, Amtrak would benefit so much that they could help put up some of the collateral needed to fund the leveraged purchase.
As a California Inc shareholder, I want the state to take the most prudent approach to the HSR project. We live in a capitalist society, so let’s run this project like a business and take the rational, market-based approach to the UP problem. I request that the California Inc board begin a leveraged-buyout of UP immediately.