Hi everybody.
Before any forum member celebrates the withdrawal of the Union Pacific merger proposal for Norfolk and Southern they have to realise that NS are far from commercially secure In its present structure. The Norfolk and southern board has had to make large financial pledges in regard to restructuring the entire company before their institutional fund investors would agree to retain their shares.
The Norfolk and Suffolk board have informed investors that it will reduce its overall running costs by 650 million in the next four years with 130 million of that saving to be achieved within the next financial year.
The board have also informed investors that it will reduce its financial gearing (the percentage of debt versus total company asset value) to below 65% by 2020. The foregoing is a large financial undertaking as it is believed that the present financial gearing is above 85% .
To carry out the above the company has made two new executive appointments. The first of the foregoing is a new human resources director whose job it will be to reduce the overall wage and salary bill along with employees ancillary benefits such as pensions etc. Five hundred job positions have so far been earmarked for “consolidation” within the next financial year.
The new financial director will have the huge job of reducing the company's overall debt position by selling off marketable assets which of course will have the effect of reducing the company's overall size. As one stock market analyst has already commented, “ whether there are enough disposable assets available to have a large impact on the debt while at the same time still enable the efficient running of the Railroad has yet to be seen”.
The overall ambition of the above is to drive up the company's stock market value. At present the NS share value has fallen to approximately $80 per share as compared to a top market price of $104 per share in April 2015. Achieving a recovery in the company share value is fundamental to the future survival of Norfolk and Southern in its present form as nothing else will suffice it's long term investors.
Failure to make substantial progress in all the above within the next financial year would inevitably see a sell off of shares by the institutional fund investors as they cut their losses with the company. Norfolk and Southern could then be bought up by any American owned venture capitalist group with all the undoubted repercussions that would bring.
As stated, the future of Norfolk and Southern is still very much in doubt, and it certainly is not a time to start clapping and cheering in regard to the Norfolk and Southern future.
Bill
