Is CSX Falling Out of the Lap of Luxury?

A piece of American history rests in the hands of CSX (NYSE: CSX  ) shareholders, but that arrangement could soon change. The Greenbrier, the company's luxury resort in southeastern West Virginia, is losing millions, so the railroad operator has engaged Goldman Sachs (NYSE: GS  ) to analyze the situation and provide advice on strategic options with respect to the National Historic landmark property.

Although Goldman's advice remains pending, some construe its involvement as evidence of intent by CSX to put the Greenbrier on the market, which would undoubtedly save money in the near-term. Shares are up since their engagement became public knowledge.

CSX has stated its goal is to make the Greenbrier into a viable business entity, but that task won't be accomplished easily under CSX's tenure. Ongoing disputes in recent years between management and a workforce consisting of more than 1,000 union employees have fed rumors of a strike.

Subsequently, some large groups and conventions that usually book years in advance have cancelled their reservations and other travelers have sought out vacation alternatives. Throw in a recession, and you get a resort that lost $35 million last year. It could do even worse in 2009.

In view of this history, it's unlikely that the unions will voluntarily make sufficient concessions to CSX to return the resort to viability. It's also unlikely that a prospective purchaser of the resort would be willing to assume the status quo there, which appears to present an unsustainable cost structure. A sale in bankruptcy may, however, be an effective solution to The Greenbrier's problems, and perhaps the likely one.

Regardless of Goldman's conclusions, it's clear that the unions and a profitable Greenbrier cannot coexist without appropriate cost-cutting. The arrival of third-party investment banking consultants and the prospect of a CSX sans its unprofitable subsidiary has brought renewed optimism to CSX's shares, and the unions should take notice.

Well … now what?
Only a small percentage of investors are in a position to scoop up the Greenbrier, but at the right price, it could be the purchase of a lifetime. It houses world-renowned golf courses, fine dining, and has accommodated scores of U.S. presidents and foreign dignitaries over the years.

American history buffs revel in its past -- it was occupied, though not concurrently, by both armies of the American civil war and is the site of a formerly secret underground bunker complex designed to protect the entire U.S. Congress from a nuclear attack. If not for the shelter it currently affords to entrenched labor unions, the Greenbrier would be as good as gold.

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Chris Jones has neither long nor short positions involving any company mentioned in this article. The Motley Fool's disclosure policy shot JR.


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