Although the Federal Railroad Administration doesn’t have the authority to block railroad mergers, Administrator Sarah Feinberg told the Wall Street Journal there are “significant safety hurdles” to any merger involving a major U.S. railway.
The Federal Railroad Administration is apparently throwing up another potential roadblock in Canadian Pacific Railway’s proposed takeover of number four U.S. railroad Norfolk Southern Railway.
Federal Railroad Administrator Sarah Feinberg reportedly told the Wall Street Journal the FRA, which is responsible for safety regulations surrounding the rail industry in the United States, would examine the “significant safety hurdles” resulting from any merger involving a major U.S. railway.
The Norfolk Southern board has already rejected the unsolicited $30 billion purchase offer from Canadian Pacific on three separate occasions, calling it “grossly inadequate,” unlikely to win federal approval, and potentially damaging to customer service. CP officials have not ruled out a hostile takeover attempt by going directly to NS shareholders, but opposition continues to mount against the deal, with members of Congress, unions and even NS customers lobbying the Surface Transportation Board to reject it.
Other major railroads like CSX Corp., Union Pacific Corp. and BNSF Railway have also voiced their opposition to the merger. Matt Rose, executive chairman of BNSF, has said that if the CP-NS deal were to go through, it would likely lead to further industry consolidation and as other railroads try to remain competitive and that BNSF, owned by billionaire investor Warren Buffet’s Berkshire Hathaway Inc., would participate in such activity.
Although the FRA doesn’t have the authority to block railroad mergers, the STB does empower the administration to ensure any merger would not result in significant safety issues. The FRA would be responsible for working with the both companies on a “safety integration plan” in the event a merger takes place.
“Combining large rail systems, rule books, workforces, and safety cultures can lead to safety vulnerabilities and deficiencies,” said Feinberg. “It’s our job to insure that safety is not only not compromised in any potential merger, but prioritized.”
Such challenges, federal regulators would argue, have in the past resulted in serious safety issues following rail mergers. The National Transportation Safety Board held a special hearing in 1998 investigating Union Pacific after several fatal incidents following its merger with Southern Pacific the previous year.
At the time, regulators including the FRA blamed the accidents on an inadequate merging of corporate cultures and accused UP of prioritizing on operational efficiency over safety.
“Operating safely is the foundation of our operating model here at CP. It’s a multipronged approach that shapes all our decisions at every level and has driven improvements at CP and will drive significant and lasting safety improvements at NS,” Canadian Pacific Chief Operating Officer Keith Creel said in an emailed statement. He added that the railways would merge in such a way as to result in more end-to-end service for customers without handoffs and interchanges, which would actually serve to improve safety.
Norfolk Southern declined to comment on the reports.
Deb Miller, a member of the Surface Transportation Board, said in an interview that the agency would investigate any potential safety issues arising from the CP-NS merger, should an application be filed. The STB is the federal regulatory body responsible for economic oversight of the nation’s freight rail system, including railroad rates, mergers, line acquisitions, new rail-line construction, line abandonment, and other issues.
“Without question, safety is very likely to come up, but it’s going to come up under that broader question of public interest,” said Miller.
FRA to examine safety implications of potential CP/NS merger
