Quote:

Guest
Re: Union Pacific Bankruptcy- Bezos Buy?
Author: Guest
Date: 06-30-2021 - 20:27

There’s only one reason UP would go into bankruptcy. For a land grab.

Bankruptcy means your liabilities exceed your assets. Do you realize neither the Milwaukee Road or the Rock Island ever met that criteria? Both, while poorly managed could have been recapitalized by liquidating a portion of their real estate holding. Neither did because certain interests realized they were worth far more dead than alive. Note the stock price on both skyrocketed once it was announced they were going to liquidate. It’s a long financial story but available with a little digging.

You suggest they sell assets to generate capital to modernize and maintain the railroad? That doesn't seem wise. Selling assets is a one-shot deal, not a sustainable, long term plan. Selling assets leaves you less to borrow against later.

The Rock Island did not have a lot of debt relative to its assets from the figures I found, so I suppose it could have taken on more debt to recapitalize and repair the mainline tracks. But I don't think management was willing to take on more debt because they knew the return on that investment was only one to three percent profit, which was not adequate to justify the debt. So railroads were in a really tough spot, it seems to me.

Look how over-leveraged Sears was in FY 2017. You can see why they declared bankruptcy the next year.

(millions)
Total debt: $13,186
Total assets: $9,362

Demise of Sears brings us full-circle back to Bezos and the success of Amazon. Competition ultimately is what forces a company into bankruptcy. Railroads had a lot of that in the 70's.