** UPDATE ** CSX: STB Rules PAR Acquisition Significant Transaction

25.March – Washington DC – The Surface Transportation Board has reviewed the submission filed 25.February.2021 by CSX Corporation to merge/acquire Pan Am Railways, Inc. styled and the associated transaction designating G&W’s Berkshire & Eastern as the operator of PAS in an application for a Minor Transaction and the Board finds that the Proposed Transaction would be a “significant” transaction.

The Board’s regulations require that applicants give notice two to four months prior to the filing of an application in a “significant” transaction. Because Applicants argue that the Proposed Transaction is a “minor” transaction, they did not file the required prefiling notification before their 25.February.2021, submission seeking Board approval of this “significant” transaction and did not pay the filing fee for a “significant” transaction.

Their submission cannot be treated as an application at this time. The Board will, however, consider the February 25, 2021 submission a prefiling notification and publish notice of it in the Federal Register, which will permit Applicants to perfect their application by supplementing their submission with the requisite information for a “significant” transaction in accordance with the Board’s regulations, between 25.April and 25.June.2021 (i.e., two to four months after the Notice was filed).

Perfect the Filing for April

When filing a prefiling notification, merger applicants in a “significant” transaction must propose a procedural schedule for Board review of their proposed transaction. As part of their tender of an application for a “minor” transaction, Applicants had proposed a procedural schedule that tracks the statutory deadlines for processing “minor” applications. Since the Board finds the proposed transaction to be “significant,” Applicants must now file with the Board, no later than 1.April.2021, a revised proposed procedural schedule that reflects the Board’s determination that this is a “significant” transaction. The proposed procedural schedule should indicate the approximate filing date of its supplement perfecting its application for a “significant” transaction, which date, as noted, must be between 25.April and 25.June.2021. Comments on the proposed procedural schedule will be due 10 days after publication of the proposed procedural schedule in the Federal Register.

The Board’s regulations also call for merger applicants to indicate in their prefiling notification the year to be used for the impact analysis required in “significant” transactions.  In their Notice, Applicants used operating data from 2019 in their Operating Plan-Minor. The Board therefore will designate 2019 as the year to be used for impact analysis in the application unless Applicants indicate otherwise when they submit the proposed procedural schedule.

In addition, Applicants must submit the difference between the filing fee for a “minor” transaction (which Applicants already have paid) and the fee for a “significant” transaction when they file their application for a “significant” transaction.

Competitive Impact is Not Clear

Under both the CSXT/PAR and the B&E/PAS filings, the Board cannot make the determination that the transaction would clearly not have any anticompetitive effects, based on the current record. Under the Proposed Transaction, CSXT would acquire control of over 1,200 miles of rail line throughout the New England area, including joint ownership with NS of a Class II carrier that currently competes with CSXT’s mainline in the region. Applicants acknowledge that, because PAS owns a route that is roughly parallel to an existing CSXT route from upstate New York to the Boston area, CSXT’s joint control of PAS and its acquisition of Springfield Terminal could give CSXT “some influence over competition for movements into New England,” except for agreements reached with NS and GWI.  Noting the possibility that, if CSXT were to retain pricing or operational control of PAS, “the transaction could present certain competitive concerns”.  In fact, when the Board authorized the creation of PAS in 2009, it noted that the transaction “would significantly increase competition between railroads by providing an upgraded east-west main line route to compete with a parallel main line route operated by CSXT.”

The competitive impact of CSXT acquiring joint ownership of PAS and Springfield Terminal is not clear at this time, notwithstanding the remedial measures that Applicants have proposed. Further, Applicants have identified “limited instances” where the operation of PAS by a G&W-owned railroad could raise competitive concerns, specifically for the Vermont Railway.  The VTR interchanges with G&W’s NECR at Bellows Falls and two customers on the Conn River Line that are currently served by PAS and a G&W’s NECR, would only be served by G&W-owned railroads following the Proposed and Related Transactions, which offers a competitive concern.

Not Just PAS Causing Concern

Applicants have identified a small number of jointly served PAS-CSXT shippers in Springfield, MA, as well as four other shippers that are being served independently by both the PAR System and CSXT.  Three of these shippers are located in Everett, MA, an inner industrial suburb near Boston “with difficult rail connections to reach the less congested portion of the freight rail network”.

According to the STB, the record currently before the Board does not clearly establish that the transaction would not have any anticompetitive effects on these or PAS shippers that would fall under the operations of newly-appointed G&W’s B&E.

Applicants have taken steps to attempt to address these potential competitive concerns, such as entering into the agreements with NS and G&W and making various price, interchange, and other commitments.  Additionally it has been requested that the Board impose the terms of the NS Settlement Agreement and various commitments as conditions of its approval of the Proposed Transaction.  The Board advises that classifying this transaction as “significant” would provide additional information and the time needed to develop a more comprehensive record so that it may analyze the competitive concerns identified, as well as any others not apparent from the Notice.  This will also provide time for consideration as to whether Applicants’ proposed remedies, including the conditions that Applicants have requested the Board impose, adequately address these concerns.

Applicants’ submission asserts that there are anticipated benefits associated with the transaction. “Based on the information the Board has received regarding the possible competitive impacts today, the Board is unable to conclude at this stage that any anticompetitive impacts would clearly be outweighed by the potential contribution to the public interest in meeting significant transportation needs. However, the classification of this transaction as “significant” should not be read as any indication of how the Board might ultimately assess and weigh the benefits and any impacts on competition after development of a more complete record.”

What’s next?  A new procedural schedule is due from CSX by 1.April, should the filing stand as presented.  Next up will be the application filing which can not be filed prior to 25.April and no later than 25.June, which will need to further address issues raised preliminarily.

{Full Federal Register Publication}