Federal regulators reject CSX-Pan Am merger application as incomplete (updated)

WASHINGTON — It’s back to the drawing board for CSX Transportation’s proposed acquisition of New England regional Pan Am Railways.

The Surface Transportation Board today rejected as incomplete CSX’s application to acquire control of Pan Am.

“The Board finds that the application fails to include all of the information needed to satisfy the Market Analysis required for a ‘significant’ transaction application,” the board said in its decision.

CSX can file a revised application that addresses the board’s concerns, and indicated that it plans to do so.

“CSX appreciates that the STB desires additional information,” the railroad said in a statement, “and we will provide it as expeditiously as possible. We are confident that the pro-competitive acquisition of Pan Am will bring significant benefits to stakeholders in the Northeastern United States and beyond and look forward to presenting further detail illustrating those benefits.”

This is the second strike against CSX in the merger application process. CSX initially sought to have the Pan Am deal treated as a minor transaction that would get a streamlined board review. But the STB in March ruled that CSX’s acquisition of Pan Am is a significant transaction requiring a more rigorous review process.

CSX filed its more detailed merger application on April 26. It included a market analysis that reviewed the deal’s potential impact on rail competition in New England, including the Pan Am Southern joint venture with Norfolk Southern. It also detailed CSX’s naming of a Genesee & Wyoming subsidiary, Berkshire & Eastern, as the neutral operator of Pan Am Southern and how that would affect neighboring short lines.

But the STB today said the market analysis missed the mark and had so many shortcomings it did not provide the board enough information to properly judge the merger.

“The Board finds that the Market Analysis and supporting verified statements do not sufficiently describe ‘the impacts of the proposed transaction — both adverse and beneficial — on inter-and intramodal competition,’ nor do they meet the other specific requirements for a Market Analysis, including the requirement for supporting data. Because the Market Analysis is incomplete, the Application will be rejected,” the decision reads.

The board also pointed out a contradiction in the application: CSX says that while it expects traffic growth over time, it does not expect significant traffic increases on Pan Am despite offering better service, track improvements, and extended market reach for the railroad’s customers. “If so,” the board said, “one would expect some growth in traffic volume.”

The board also sought more information about the effect plans to divert Norfolk Southern intermodal trains from the current routing via Hoosac Tunnel would have on Pan Am Southern revenue. As part of the Pan Am acquisition, CSX agreed to give NS trackage rights for its pair of daily intermodal trains that run to Ayer, Mass. The current route is via the former Boston & Maine main line from the Albany, N.Y., area to Ayer. The trackage rights would divert the trains to CSX’s Water Level Route near Albany, then onto the former Boston & Albany to Worcester, Mass., then to Ayer via a combination of Providence & Worcester, Pan Am, and Pan Am Southern trackage.

The STB said a revised merger application should include additional detail on the impact of the deal on railroads in New England; provide more information about how the merger would affect major traffic commodity groups on Pan Am and Pan Am Southern; outline rail competition that would exist after a merger; list all shippers whose options would be reduced from two railroads to one; and quantify the amount and types of traffic that would benefit from single-line service.

— Updated at 5:15 p.m. CDT with CSX statement.