Sens. Mike Lee and Amy Klobuchar wrote a letter to the United States attorney general’s office saying Canadian Pacific’s proposed takeover of Norfolk Southern Corp. could “limit the ability of the STB to protect competition.”
Two top members of a United States Senate subcommittee for antitrust matters have sent a letter to the U.S. attorney general’s office voicing concerns over Canadian Pacific Railway’s proposed takeover of Norfolk Southern Corp.
CP last week sent a petition to the U.S. Surface Transportation Board (STB) asking for a declaratory order confirming the viability of a proposed voting trust structure the company has suggested as part of the acquisition.
According to a report in the Wall Street Journal, under CP’s voting trust plan, CEO E. Hunter Harrison would sell his shares in Canadian Pacific and become chief executive of Norfolk Southern. CP would then be headed by current Chief Operating Officer Keith Creel.
“We have serious concerns that the voting trust Canadian Pacific plans to implement as part of its proposed acquisition of Norfolk Southern will limit the ability of the STB to protect competition,” Sens. Mike Lee, R-Utah, and Amy Klobuchar, D-Minn., wrote in the letter.
The leaders of the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights said the voting trust could allow Harrison to “implement a commercial strategy at Norfolk Southern different from that envisioned by the current Norfolk Southern management.” Lee and Klobuchar noted that under the Hart-Scott-Rodino Act, merging companies are not allowed to coordinate any sort of business integration prior to regulatory review.
Earlier this week, the less-than-truckload division of FedEx Corp. said in a similar letter to the STB a merger between CP and NS would “lead to diminished service as well as higher shipping costs.”
FedEx Freight’s letter echoed concerns voiced previously by CSX Corp., Union Pacific Corp. and BNSF Railway, other members of Congress, rail unions, NS customers, and FedEx rival UPS, who have said a merger would cause further consolidation in the industry that would lead to a decrease in competition and service levels.
CP has repeatedly argued its proposed takeover of NS would enhance competition, increase service levels for its customers and drive economic growth, but the number four U.S. railroad has rejected three separate cash-and-stock bids valued at around $30 billion, deeming them “grossly inadequate” and unlikely to win approval from the STB.
Meanwhile, the STB last Friday addressed its regulatory review process in a letter to the ranking members of the Senate Committee on Commerce, Science, and Transportation and Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety, and Security.
“We note that while CP filed a petition for declaratory order on March 2, 2016, regarding a hypothetical voting trust, there is no proceeding before the Board seeking approval of a proposed merger,” the STB wrote. “However, we must nevertheless exercise caution and avoid prejudging issues that could arise if a merger application were submitted to this agency.”
With regard to the proposed voting trust, the STB said it “would conduct a more formal review of such voting trusts, including a public comment period.” This would include assessing “whether a voting trust insulates the merger partners from unlawful pre approval control,” as well as “whether the use of the trust would be consistent with the public interest.”
The STB noted the board’s 2001 merger rules require “major merger applicants” – a control or merger involving two or more Class I railroads – to “show that a proposed merger is in the public interest by demonstrating that public benefits, such as improved service and enhanced competition, outweigh potential negative effects, such as service disruptions and harm that cannot be mitigated.”
“They also require applicants to address whether claimed benefits can be achieved by means other than a merger,” the regulatory agency added.
“The Merger Rules require applicants to address a number of factors, including: public benefits, potential harms, cumulative impacts of the merger and crossover effects on the rail industry, downstream impacts (including additional consolidations), transnational issues and National defense implications, and impacts on railway labor. As part of this showing, the applicant must submit specific financial data and market analyses,” it said.
The STB said applicants must also address any potential environmental impact of a merger, and submit both a Safety Integration Plan and a Service Assurance Plan to address potential adverse service effects during merger implementation. Any major merger applicants would also be subject to formal STB oversight for a minimum of five years following the integration.
Senate antitrust subcommittee members voice concerns over CP-NS deal
