Canadian Pacific Railway Limited today said the Surface Transportation Board’s (“STB”) decision to refuse Canadian National ("CN") and Kansas City Southern's ("KCS") joint motion for voting trust approval is the right one for rail shippers, the freight rail industry and the North American economy.
“The STB decision clearly shows that the CN-KCS merger proposal is illusory and not achievable,” said Keith Creel, CP President and CEO. “Knowing this, we believe the August 10 CP offer to combine with KCS, which recognizes the premium value of KCS while providing regulatory certainty, ought to be deemed a superior proposal. Today, we have notified the KCS Board of Directors that our August 10 offer still stands to bring this once-in-a lifetime partnership together.”
The text of the letter to the KCS Board of Directors can be found below in this news release.
“CP has always maintained that the CN-KCS combination and the proposed CN voting trust is not in the public interest,” Creel said. “Hundreds of rail shippers, community leaders, elected officials and other stakeholders have voiced those same concerns and today the STB agreed.”
CP-KCS is the only true end-to-end Class 1 combination that serves the public interest preserving and enhancing competition for customers and enabling a stronger North American rail network connecting Canada, the United States and Mexico. CP-KCS is a superior combination that has a path to approval and deal certainty for the KCS shareholders.
As previously announced, CP continues to pursue its application process for a potential acquisition of KCS so that the STB can review the pro-competitive CP-KCS combination without undue delay. Importantly, the STB has already approved CP’s use of a voting trust and affirmed KCS’ waiver from the new rail merger rules it adopted in 2001 because a CP-KCS combination is truly end-to-end, pro-competitive, and the only viable Class 1 combination.
KCS Stockholder Meeting Sept. 3
CP has filed a proxy statement asking stockholders to vote "AGAINST" the proposed CN-KCS combination at the KCS stockholders meeting so that KCS stockholders are not locked into the CN-KCS deal and unable to consider other, better, options. That includes CP's Aug. 10 offer submitted to KCS. A vote to "ABSTAIN" and vote "AGAINST" are essentially the same since they both withhold approval of the CN merger proposal.
The STB Decision
In rejecting the proposed CN-KCS voting trust, the STB recognized the trust was not consistent with the public interest and the CN-KCS combination is anticompetitive.
In its decision the STB wrote, “…the Board finds that (CN and KCS) have not demonstrated that their use of a voting trust would be consistent with the public interest. Applicants have shown no benefit from the use of a voting trust to stakeholders other than KCS and CN. At the same time, the use of a voting trust, in the context of the impending control application, would raise risks that threaten to undermine the public interests.”
Noting the competitive overlap the CN-KCS merger brings with it, the STB said “the competitive overlap in (CN and KCS’s) networks is not limited to, and extends beyond, the Baton Rouge-New Orleans corridor. Applicants operate parallel lines through the central portion of the United States and compete for north-south traffic on these lines, particularly where KCS’s network parallels the section of CN’s network that CN acquired from Illinois Central (IC) in 1999.”
The decision notes how any CN-KCS combination would have to be reviewed under the new regulations established in 2001, the first proposed merger to fall under those rules. The “new regulations that apply to major transactions such as this one go beyond preserving competitive options at two-to-one locations and seek to protect product and geographic competition.”
In comparing the CN-KCS combination with the proposed CP-KCS transaction, the STB said “the two transactions are substantially different: the proposed CP-KCS transaction … is an end-to-end merger, whereas, here, the CN system overlaps with that of KCS”
