Sunday, March 18, 2007

A Few Other CSX Thoughts

The entire situation involving the CSX (CSX) call trade on late Friday was bizarre and I can't help but to wonder if it wasn't some shady expiration Friday manipulation. Sure, I gladly took the more than 100% profit on those calls in a little more than an hour, but where do these rumors come from? theflyonethewall reported the rumor as "takeover chatter" at around 2:30 pm and it was off to the races. In recent days analysts from Bank of America and Calyon have poo pooed the idea of LBOs in the railroad sector because the returns would not be what those operators are accustomed to: CSX 5 yr average ROE is 8.56% compared to SPX average of 18.43% over the same period. There was mention in the rumor mill of this Thursday's JP Morgan Aviation and Transportation Conference, but that conference has been a known quantity for weeks listed, for example, on Yahoo's menu of Burlington Northern (BNI) stories as far back as March 8th. With an enterprise value of over $22 bln, I'm just hard pressed to think of anyone who would want to buy or merge with CSX and would be shocked if a deal materialized tomorrow morning. Of course, never say never, but it would be a shocker if it happened.

There is one railroad company, however, that I have watched and have wondered about: Kansas City Southern (KSU)...
KSU is back at its highs again while Norfolk Southern (NSC) and Burlington (BNI)are below their highs as rail carloads come down. Recently Bear Stearns noted that KSU could be worth $50/shr in a takeover, though it maintained a Peer Perform on fundamental valuation, essential saying on the sidelines. Options players haven't been very enthusiastic either with near dead call volume.

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