23.April – WASHINGTON DC – The Surface Transportation Board on Friday afternoon released its decision on the request by Canadian Pacific and Kansas City Southern to review their proposed merger under the pre-2001 merger rules.
CPKC had stated that the Transaction is subject to the regulations set forth at 49 C.F.R. part 1180 (2000) pursuant to the waiver for transactions involving KCS described in 49 C.F.R 1180.0(b). (Notice of Intent 3-4 & n.5.) Section 1180.0(b) provides, in pertinent part, that the Board “will waive application of the regulations contained in this subpart for a consolidation involving KCS and another Class I railroad and instead will apply the regulations in this subpart A in effect before July 11, 2001 . . . unless the Board is shown why such a waiver should not be allowed.”
Comments in support of and in opposition to application of the waiver provision have been filed by rail carriers, shippers and shippers’ organizations, the U.S. Department of Justice, and other interested parties, and Applicants have replied to the opposing comments.
In adopting the current major merger rules, which emphasize the public benefits flowing from enhanced competition, the Board noted that the “eastern and western railroads do not simply meet end-to-end at Chicago and the Mississippi River crossings,” and that there is “a fair degree of overlap” with respect to the Class I railroads, including connections of large U.S. and Canadian systems.
However, the Board also adopted the waiver that would be applied to KCS, finding that a “potential transaction involving KCS and another Class I carrier would not necessarily raise the same concerns and risks as other potential mergers between Class I railroads.”
The Board finds that the waiver provision under 49 C.F.R. § 1180.0(b) should apply to this Transaction. Accordingly, review of this Transaction will be governed by the regulations contained in 49 C.F.R. part 1180, subpart A in effect before July 11, 2001.
The says that it has made the finding for several reasons. If approved, the combination of CP and KCS, the sixth largest and seventh largest Class I railroads, respectively, would still result in the smallest Class I railroad, based on U.S. operating revenues.
In addition, a merger of the CP and KCS networks would appear to result in the fewest overlapping routes when compared to a merger between KCS and any other Class I carrier. The interrelationship between the CP and KCS networks in fact appears to be end-to-end in nature, which likely raises fewer competitive concerns than a transaction that is not end-to-end.
In sum, the Transaction appears to fall neatly into the Board’s rationale for adopting the waiver in the first instance. The Board has considered the objections filed by those commenters arguing the waiver for transactions involving KCS should not apply to this Transaction, and finds that those commenters objecting to the waiver have not shown that the waiver should not be applied to this Transaction.
Rather, the Board finds more compelling the reasoning offered by Applicants in their reply that the waiver in the current merger rules is applicable to this Transaction.
Interestingly, CN would likely NOT enjoy the same waiver, as the Board has hinted at overlap concerns in their decision.