CSXT, CN: STB Derails Massena Line Deal

25.February, Washington, DC – After multiple delays and a period of silence, the STB issued a decision on 24.February denying reconsideration of the original conditional approval of the CN/B&LE acquisition of the CSXT Massena Line.

On 6.April.2020 the STB authorized, subject to conditions, the Bessemer and Lake Erie Railroad Company, an indirect wholly owned rail carrier subsidiary of Canadian National Railway Company (CN) to acquire from CSX Transportation, Inc., and to operate 236.3 miles of rail line in New York. {STB Decision No. 4, FD 36347, served Apr. 6, 2020) (with STB Member Fuchs dissenting in part).

NO RECONSIDERATION WITHOUT CHANGE

B&LE and CSXT filed separate petitions for reconsideration of Decision No. 4, on 4.June.2020, each seeking removal of a condition imposed by the STB and reconsideration of the petition.  The STB found that section 5.14(b) of the PSA posed serious competitive concerns in that it restricted B&LE from ever seeking access to FGLK and NYSW, whether directly or indirectly, before the Transaction or after, even through means other than the Transaction. Decision No. 4, FD 36347, slip op. at 9.

The STB determined that “the inclusion of this broad, prohibitive provision in the Transaction runs contrary to the statutory objectives of providing carriers and their customers access to the STB to resolve competitive issues and puts B&LE (and FGLK and NYSW) at a competitive disadvantage relative to other carriers that also connect to CSXT going forward.”

To ameliorate this competitive harm, the STB imposed a condition that required B&LE and CSXT to modify or eliminate section 5.14(b) to address the STB’s concerns and to submit their proposed changes to section 5.14(b) to the STB for review by May 6, 2020 (the section 5.14(b) condition).

CSXT asserted that, in assessing the competitive impact of section 5.14(b), “the STB could not, and did not, point to any particular circumstances where Section 5.14(b) would have an identifiable or  measurable competitive impact in the future” and that “it would be material error for the STB to withhold approval” of the Transaction based on “speculative future effects.”

Similarly, B&LE argued that “the STB did not find that the Transaction, subject to Section 5.14(b), would cause a substantial lessening of competition,” and that, “in imposing the condition, the STB speculated about potential future harm to B&LE from the limitation of Section 5.14(b), but it never addressed whether such a concern was substantial.”

CSXT and B&LE both argued that the STB did not weigh the anticipated benefits of the transaction against the perceived competitive harm of section 5.14(b) and that, had the STB done so, it could not have concluded that the anticompetitive effects outweigh the public interest.

THE CHOICE IS YOURS…

The Decision states: “The STB carefully considered the benefits of the Transaction and the anticompetitive concerns raised by the Transaction as proposed, including section 5.14(b). That provision today remains unmodified and poses the same anticompetitive concerns the Board previously considered. B&LE claims that, should the Board decline to remove the condition from its approval, the Transaction will not proceed, and the public benefits of the Transaction will be lost.  It is, of course, true that if the section 5.14(b) condition remains in place and the parties do not comply with it, the Transaction may not proceed, but that is a choice that the parties are free to make.  But the parties’ voluntary choice not to comply with the section 5.14(b) condition is fundamentally not a “changed circumstance,” and does not, by itself, constitute a basis for the STB to revisit its judgment or remove the condition, although the parties’ failure to reach an agreement would seem to confirm the STB’s concerns about section 5.14(b)’s effects on competition. To consider the parties’ decision not to comply with the condition imposed by the Board a “changed circumstance” would be preposterous and would invite parties to seek reconsideration of every Board decision imposing a condition with which they disagree, essentially creating an untenable “bootstrap” basis for reconsiderations.”

DOOR IS OPEN

The STB made clear that should B&LE and CSXT agree to a proposed change to section 5.14(b), they may re-submit their proposal in the near term to the STB for review, notwithstanding the deadline in ordering paragraph 1 of Decision No. 6.

Full summary of the denial is here:  STB Denies Reconsideration of CN Acquisition of CSXT Massena Line