WASHINGTON — Canadian Pacific and Kansas City Southern plan to file their merger application with U.S. regulators on or around June 28 and have proposed a 10-month review of the deal that would create the first railroad to link the U.S., Canada, and Mexico.
The railroads told the Surface Transportation Board that their proposed review timetable follows the schedule the board set for the last Class I merger, Canadian National’s 1999 acquisition of Illinois Central.
“Aligning the schedule for this proceeding with that adopted in CN/IC is particularly appropriate in light of the similarity of the issues raised by the two transactions,” CP and KCS said in a regulatory filing on Monday.
They noted that combining CP and KCS — the two smallest Class I systems — would create new single-line service that will link Canada and the U.S. Northeast and Upper Midwest with the Gulf Coast, Texas, and Mexico. And much like CN-IC, the deal also will combine two railroads in an end-to-end merger with no overlapping routes.
Given the similarities between the CP-KCS transaction and CN’s acquisition of IC, CP and KCS said there would be “abundant justification” for the STB to adopt an even shorter six-month review schedule.
CP and KCS argued that the merger is in the public interest and offers “enormous public benefits” that include more robust rail competition. The two railroads announced the proposed deal on Sunday [see “Canadian Pacific, Kansas City Southern merger to redraw Class I railroad map,” Trains News Wire, March 21, 2021].
The STB also should consider the fact that the CP-KCS combination comes after KCS last year rejected a competing bid from private equity firms. The KCS board of directors chose to pursue a deal with CP because they wanted shareholders to participate in growth that would flow from combining the CP and KCS systems.
“In making that choice, Kansas City Southern understood that a CP/KCS transaction would have to undergo a lengthy and thorough regulatory review process to which a private equity acquirer would not be subject,” the railroads said. “Kansas City Southern’s evaluation of competing acquisition bids – one (CP’s) with tremendous synergies and public benefits, the other with none – has already been skewed by the delay and uncertainty represented by the statutory review process applicable only to the CP bid.”
KCS successfully lobbied for an exemption to the STB’s more stringent merger review rules that were imposed in 2001. Those rules, which were drafted after the megamergers of the 1990s led to major service disruptions, have effectively halted further Class I consolidation.
The KCS waiver from the new merger rules is not ironclad.
The STB said in 2001 that old merger rules would apply to a KCS combination with another Class I railroad “unless we are shown why such a waiver should not be allowed. Interested parties must file any objections to this waiver within 10 days after the applicants’ pre-filing notification.”
That would give railroads or other interested parties until April 1 to file a challenge.
Analysts expect the STB will approve the CP-KCS merger either way, and CP CEO Keith Creel said on Sunday that because the deal is pro-competitive it would sail through even the more stringent review process.
Class I railroads say they are reviewing the CP-KCS deal.
“We are assessing the proposed acquisition now to ensure we have a thorough understanding of the potential impacts,” Norfolk Southern spokesman Jeff DeGraff says. “We will advocate diligently for the interests of our customers and shareholders as the transaction moves through the regulatory review process, with a particular emphasis on protecting the current and strategic value of our Meridian Speedway joint venture with Kansas City Southern.”
The Meridian Speedway is a 320-mile joint venture between Meridian, Miss., and Shreveport, La. NS has a 30% stake, while KCS holds a 70% interest in the joint venture that is the shortest route between the Southeast and Southwest.
“Union Pacific is in the process of evaluating the proposed transaction between the Canadian Pacific and Kansas City Southern railroads,” UP said in a statement. “We look forward to the regulatory review process.”
BNSF Railway and Union Pacific both said they are reviewing the deal. CN did not respond to an email seeking comment, and railway executives who appeared on an investor webcast on Tuesday morning said they would not take questions on the CP-KCS deal. CSX Transportation declined to comment.
A problem with staying separate is that another RR may try to acquire KCS. For CP, it is a defensive move. As was UP acquiring SP.
NS and CP could share the route to Dallas.
Wasn’t my idea. Not sure where I saw it anymore. I have long thought Shreveport-Dallas should go to NS along with the Vicksburg Route, though I’m sure CP would like to go to Dallas.
Brian, I like your idea. I would like to add to it. NS gets Meridian Speedway and trackage rights to Dallas. CP-KCS gets trackage rights Detroit-Springfield. NS and CP-KCS operate Springfield-Kansas City using both lines directionally. CP-KCS gets trackage rights Moberly-St Louis, greatly shortening their St Louis line.
Or NS gets Meridian Speedway and connecting trackage in exchange for trackage rights over Detroit-Springfield.
Regarding the former Gateway Western, does CP even want it? If not, or if they have to sell it, who would be interested?
CN – Entrance to KC from Chicago via Springfield and from East St Louis. Also provides a direct Chicago-STL route via Springfield.
CSX – Entrance to KC from East St Louis, but longer than NS’ competing route.
BNSF – BNSF has no direct STL-KC route. They could shorten the route by connecting it to the K line at Louisiana, MO. The Jacksonville-STL route could be a shortcut for Galesburg-STL traffic. BNSF could offer KCS a more direct STL-Texas line using trackage rights over the former Frisco.
UP – Has no direct Chicago-KC route which this would provide in connection with the UP line at Springfield. They may need to grant someone (BNSF, KCS, or UP) STL-KC trackage rights to preserve competition.
G&W or other shortline holding company?
but how come the canadian pacific and the kansas city southern want to merge into a bigger railroad if the congress and the governments of the united states, canada, and mexico think of the idea and what’s wrong if they stayed as separate railroads anyway ?
A problem with staying separate is that another RR may try to acquire KCS. For CP, it is a defensive move. As was UP acquiring SP.
KCS does pass some traffic over to CSX at East St Louis and they have excellent interfaces with TRRA and Alton & Southern here . KCS was in the middle of building a logistics hub in Jersey County, Illinois north of Alton, but that will be in question now. I am not sure what KCS was exchanging at Springfield, Illinois as they end at KC Junction with NS (former Wabash). That line duplicates the route to KCMO by NS. C&IM is strictly a coal affair and UP already has its own route to KCMO. The Jacksonville (IL) Sub is really a branch line to service Bartlett Grain and Pactiv south of town, It ends just north with BNSF in town but the rails are rusty and the switch looks like it hasn’t moved in years. Because it is not a direct route from East St Louis to Kansas City, I can’t see them getting passthrough traffic from the east unless the MacArthur Bridge closure causes traffic to head their way. UP already cut a deal with NS at Hannibal for that traffic. So beyond the expected access to the petro coast, I would expect all the east coast interchange to occur with NS on the Meridian Speedway, and with CSX at Bensenville via Clearing. Frankly I can’t see the point of the Roodhouse/Springfield Subs post merger. Other than owning a working bridge over the Mississippi and access to EStL, its not very strategic anymore.
Would CP even want to sell to NS Shreveport-Dallas? Would CP keep KCS’s part of the Alton?
Meridian Speedway will end up in NS hands.
Why? What harm is there to competition if CP retains? Why wouldn’t CP consider purchasing east-west lines to expand into major markets? Why must they remain a North-South railway in the US given their significant access to major ports on the Pacific, Gulf and to a lesser extent the Atlantic.
I am wondering with the abrupt cancellation of the Keystone pipeline has created an opportunity here. The oil will be refined, somewhere and somehow. Blessings.