Norfolk Southern set to buy stretch of D&H line from Canadian Pacific Railway

Class I railroad carrier Norfolk Southern is set to acquire the 282.55 miles of Delaware & Hudson Railway Co. (D&H) rail line between Sunbury, Pa. and Schenectady, N.Y. D&H is a subsidiary of Class I railroad carrier Canadian Pacific Railway.

The deal price is $217 million and subject to review by the United States Surface Transportation Board, according to NS officials.

NS said that the D&H lines it plans to acquire connect with the NS network at Sunbury, Pa. and Binghamton, N.Y. and give NS single-line routes from Chicago and the southeast U.S. to Albany, N.Y., which is in close proximity to NS’ Mechanicville, N.Y.-based intermodal terminal. The company added that NS would gain an enhanced connection to its joint venture subsidiary Pan Am Southern that serves New England-based markets, and it would also acquire the D&H car shop in Binghamton and other facilities located on that corridor.

Under the terms of the deal, NS said it would also retain and modify overhead trackage rights on the line between Schenectady, Crescent, and Mechanicville, N.Y. and Saratoga Springs, too, with the D&H retaining local access to serve customers in Schenectady and also main access to Buffalo area-based shippers.

“Acquiring this portion of the D&H provides for more efficient rail transportation system by consolidating freight operations with a single carrier,” said NS CEO Wick Moorman in a statement. “Aligning the D&H track with Norfolk Southern’s 22-state network allows us to connect businesses in central Pennsylvania, upstate New York and New England with domestic and international markets while enhancing the region’s competitive rail and surface transportation market.”

NS added that were this transaction and related efficiencies not to happen, there is a concern that rail service along the southern tier of New York would be hampered with the possibility of losing what it called a “crucial link” to New England.

As for the next steps regarding this deal, NS said it has submitted an application for the transaction to the STB, with NS and CP having proposed a schedule that would lead to a second quarter 2015 approval.

“This deal is really a strategic extension of our existing lines,” said NS Executive Vice President and Chief Information Office Deborah Butler at last week’s RailTrends conference in New York hosted by Progressive Railroading magazine and independent analyst Tony Hatch. “If you look at the traffic that is moving there right now, about 80 percent of it is Norfolk Southern traffic anyway, so it is really a strategic move to align our traffic with usage of the line.”

Stifel Nicolaus analyst John Larkin commented in a research note that this sale should receive approval from the STB, explaining that the companies have smartly positioned the deal as a way to “support rail service and the economy in the Northeast” as poor service has mired the industry over the prior twelve months—and has made the prospect of any transaction unappealing to shippers, who fear conditions could worsen.

“But, as the transaction is relatively small and as the D&H is a subsidiary of CP which will simply be transferring the lightest density portion of the line (i.e. 283 miles) to NSC, we believe there is little likelihood that service could suffer,” Larkin wrote. “Furthermore, the purchase enables NSC to cement their positioning into Upstate New York and New England, ensuring that two financially secure carriers (i.e., NSC and CSX) will be in place to serve the broader region for many years to come.”