Rivals CN (NYSE: CNI) and Canadian Pacific (NYSE: CP) each are claiming that they have the support of Upper Midwest grain shippers in the battle over which railway gets to merge with Kansas City Southern (NYSE: KSU).
Kansas City Southern (KCS) and CN agreed to merge in May, resulting in KCS disentangling itself from earlier plans to merge with CP. But CP has said it is still interested in acquiring KCS if the CN-KCS merger falls through.
CP circulated a news release on Thursday that said it has the support of grain and other shippers across North Dakota, South Dakota and Minnesota. The railway said shippers from these states have sent letters to STB expressing concerns either about the merger between CN and KCS or the proposed voting trust that CN will use to acquire KCS.
The Upper Midwest has a vital voice in the merger process because 80% of the grain leaving the Upper Plains moves by rail, according to CP. These shippers include farmers, grain elevator operations and other agribusinesses involved in grain, feed, fertilizer and farm supply products, CP said.
In CP’s release, the railway shared letter excerpts from the North Dakota Grain Growers Association, the Minnesota Grain & Feed Association and the South Dakota Grain & Feed Association.
“CN would get stronger by absorbing KCS’ system, much of which is broadly parallel to CN’s existing U.S. network. This implies rationalization of assets, not investment in new competitive routes,” CP quoted the North Dakota Grain Growers Association as saying in its letter to the board. “And it implies a loss of competitive options – both concrete multi-railroad access to individual shippers and more subtle benefits of having multiple railroads near one another to serve as ‘geographically competitive’ options for transload shipments, grain moving to alternate elevators/terminals, build-ins and build-outs, and other means.”
CN shot back with its own release on Friday, saying a CN-KCS merger would provide Upper Midwest shippers with a choice of routes and competitive rates, as well as better service.
“CN’s commitment to keep gateways open on commercially reasonable terms means that agricultural customers, including farmer-owned cooperatives, enjoying competitive joint line routings with CN or KCS, will continue to have those routings available upon completion of the merger,” said James Cairns, CN’s senior vice president of the rail-centric supply chain. “This commitment assures grain customers shipping over CP lines to Kansas City and beyond will continue to enjoy the interline service they have today, along with new, enhanced rail-to-rail competition. However, for these benefits to be realized, the CN voting trust must be approved by the Surface Transportation Board (STB).”
Federal regulators have been accepting public comments on CN’s proposed voting trust, which CN and KCS say they need in order to continue merger proceedings before STB. They argue the voting trust protects KCS from being taken over as the board reviews the merger. STB is taking public comments on the voting trust through Monday.
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