The U.S. Department of Justice filed a reply in opposition to Canadian Pacific’s petition for a declaratory order from the Surface Transportation Board regarding use of a voting trust in its proposed acquisition of Norfolk Southern.
The U.S. Department of Justice is urging the Surface Transportation Board (STB) to reject a petition from Canadian Pacific Railway for a declaratory order regarding the use of a voting trust as part of the company’s proposed acquisition of number four U.S. railroad Norfolk Southern Corp.
The voting trust structure would essentially allow CP to begin running the show over at NS well in advance of the deal being approved by the relevant regulatory authorities.
The Justice Department today filed a reply in opposition to CP’s petition on the basis that the proposed voting trust would “fail to preserve the independence of the merging railroads” prior to regulatory review by the STB and “would risk harm to current and future competition,” the department said in a statement.
The department said the STB could do this either by rejecting the proposed voting trust structure outright, or by denying CP’s request for a declaratory order.
“Canadian Pacific’s voting trust proposal would compromise Norfolk Southern’s independence and effectively combine the two railroads prior to completion of the STB’s review,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.
“That makes no sense,” he said. “We urge the STB to preserve its ability to review the impact of the proposal on competition and consumers before Canadian Pacific starts scrambling the eggs.”
Just yesterday, CP released a fourth white paper touting the merits of a merger with NS, arguing that the same “precision railroading philosophy” that has taken CP from “industry laggard to leader over the last four years” would “transform Norfolk Southern Corp. (NS) and eventually build a leading transcontinental railway in North America.”
The Calgary-based railroad has been courting NS for months now, offering up three separate cash-and-stock bids valued at around $30 billion. NS, however, has been resolute, rejecting each of the unsolicited offers as “grossly inadequate” and unlikely to be approved by the STB, and refusing to negotiate further unless CP substantially increases the offer.
CP last month filed a petitioned with the STB for a declaratory order approving a voting trust structure pending the agency’s review of its proposed takeover of NS.
Under the proposed voting trust structure, which has also drawn opposition from Sens. Mike Lee, R-Utah, and Amy Klobuchar, D-Minn., the top members of the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, Canadian Pacific Railway Limited (CPRL), the holding company that owns CP, would acquire NS and CP’s stock would be placed in trust. Current CP CEO E. Hunter Harrison would become chief executive of NS, while current CP Chief Operating Officer Keith Creel takes over for Harrison at CP.
“As explained in the filing, this proposed voting trust structure fails under each prong of the STB’s regulatory requirements,” said the Justice Department.
“The proposal fails to preserve the independence of NS and CP. In addition, both CP and NS will have the economic incentives and the ability to align their business strategies before a review of the transaction. Finally, the proposal would also make it difficult, if not impossible, to effectuate a successful divestiture if the STB were to reject the merger applications.”
The department noted that the STB is an independent agency, and the Administrative Procedure Act provides the STB discretion to issue declaratory orders, but its opposition will almost certainly have an impact on the STB’s decision.
NEWS FLASH: DOJ opposes CP’s proposed voting trust
