WASHINGTON — Canadian National and Kansas City Southern today asked federal regulators to approve a voting trust that is the initial step in their plans to merge into the first railroad linking Canada, the U.S., and Mexico.
To address competition concerns in the one area where the railroads’ systems overlap, CN said it will sell the 70-mile KCS line that links New Orleans with Baton Rouge, La. The KCS New Orleans Subdivision closely parallels CN’s own former Illinois Central line, and the railroads jointly serve nine customers on the route.
CN CEO JJ Ruest says he’s confident the filing will demonstrate that a CN-KCS combination is an end-to-end merger that will boost rail competition, take trucks off the highway with faster single-line service, and benefit customers in all three nations. “We are very excited about the future and our combined companies,” Ruest told an investor conference this morning.
The KCS board last week backed out of its merger deal with Canadian Pacific and unanimously accepted CN’s offer because it was in the best interest of the company’s shareholders, customers, employees, and the communities it serves, KCS CEO Pat Ottensmeyer says. “We are totally focused and excited to join forces at this point with Canadian National,” he told the investor webcast in a joint appearance with Ruest.
“We think this combination is truly an exceptional opportunity,” Ottensmeyer adds.
The Surface Transportation Board last week rejected CN’s initial request to put KCS into a voting trust on procedural grounds because the railroads had not yet filed their merger agreement. But the board also said it would take a more cautious approach to a voting trust involving a CN-KCS merger and indicated that it had concerns over the $19 billion in debt CN would take on to finance the $33.6 billion deal.
CN and KCS filed their merger agreement on Friday. The voting trust does two things. First, it allows KCS shareholders to receive $325 per share in a combination of cash and CN stock. Second, it allows KCS to operate independently while the merger is under regulatory review.
Because the trust is identical to the one the board approved for a CP-KCS merger, CN officials say their trust request should ultimately receive board approval by the end of June.
In their voting trust filing today, CN and KCS sought to show that the merger is in the public interest and that CN has the financial strength to acquire KCS – and that it would not be harmed if it were forced to sell KCS in the event regulators reject the merger.
The railways argued that their deal is in the public interest because it would create new competition for BNSF Railway and Union Pacific between Texas and Chicago, as well as capture freight off highways thanks to single-line service linking Mexico, the U.S., and Canada.
CN also said it would not be harmed if it were forced to sell KCS if the merger were not approved. “Divestiture poses no significant financial risk to CN, as it could sell KCS and easily cover the entire amount of its new debt,” the railroads wrote. “Indeed, CP awaits in the wings with a keen interest.”
CP has said it will continue to pursue its KCS merger application with the STB and would revive its $29 billion KCS merger deal if a CN-KCS combination unravels.
CP CEO Keith Creel today questioned whether a CN-KCS combination was in the public interest because of broad competitive overlap between the parallel CN former Illinois Central and the KCS main line south of Kansas City, Mo.
A combined CN-KCS system would funnel investment away from the KCS Kansas City-Shreveport, La., main line and into the former Illinois Central, Creel argues.
CN has pledged to keep all existing gateways open, including the CP-KCS interchange in Kansas City, the only place where their systems touch. Ruest says CN wants to see more traffic flow through all of KCS’s existing interchanges.
CN and KCS say their merger, which has the backing of 1,100 shippers, officials, and ports, would generate $1 billion in synergies, including $750 million of new revenue from traffic growth.
Too bad CP & CN can’t work together and each own 50% of KCS and both benefit from its acquisition. You would end up with two winners making both systems stronger. Perhaps the Canadian government needs to step in. It could be kind of like the old GN & NP owned the old SP&S. Perhaps the Canadian government needs to step in. I don’t see how Canada will benefit from a weaken CP if CN gets KCS.
Haven’t heard from Norfolk Southern yet. NS financed & rebuilt the Meridian Speedway for KCS for a 30% share of the line to Shreveport to expedite interchange West-East traffic. They aren’t going to be happy with CN clogging up the line when/if they get the merger. Think they will want their money back with interest or forced sale of line to them. If the latter NS would limit the amount of traffic CN dumps on that line. Know CN wouldn’t like that.
As to the New Orleans-Baton Rouge line, Yes this is the choice line for any Amtrak or Commuter expansion, but Louisiana won’t buy it. Reason one is politics and reason two is Louisiana is broke and can’t afford to buy it.
Comments from Michael V. & Michael L. about CSX & Watco as potential buyers, I would also include NS & UP. KCS does a lot of petrochemical interchange with both NS & CSX. Know both would love to have ALL that traffic to themselves. As to UP, besides the chemical traffic, the KCS line would give a more direct and slightly shorter route to New Orleans. Missouri Pacific (which UP bought) had its early access into New Orleans over the IC line into New Orleans before it purchased the Texas & Pacific. After that purchase MP still used the IC line for it’s passenger trains till they were discontinued. While the traffic is good, I don’t think BNSF would buy as it would a round about route to access and much if not most of this lines traffic seems to be East bound; thus short hauling itself.
Am I correct in assuming that KCS bought the Louisiana and Arkansas RR shown in the 1985 Rand McNally RR Atlas to get access to Dallas and New Orleans and that the New Orleans to Baton Rouge line in question was part of that purchase. If so, that would also give CN access to Dallas. Comments?
History the L&A purchased the KCS in 1937, the railroads merged with the KCS being the parent company and the L&A the subsidiary. All the management from the L&A went on and managed the KCS.
This merge should not happen, the CP-KCS merge would retain that 70 mile stretch and be competitive with the CN. The STB needs to look hard at this. A CP_KCS merge wouldn’t eliminate anything including jobs. CN wants Watco to take over the BR-NO line. They already handling industries on the CN’s line between New Orleans and Baton Rouge. CP (Creel) is 100% correct the CN wants to eliminate the KCS line from Shreveport to NO and use the N-S old IC corridor.
Furthermore the KCS and CN intersect at Jackson MS . That is the Meridian speedway. Another reason to eliminate the KCS Shreveport-NO branch. The more you look into this merger the more you see why a STB was formed to stop exactly what the CN is attempting to do. CN is trying to eliminate competition. A CP-KCS would be big time competitor to the CN in this corridor and other points as well. Why else do you spend $32 billion? Only reason eliminate the competition.
CP will put up a fight to block the merger and probably will demand trackage rights all over the system. They could ask for the KCS line from KC to Texas as a condition, similar to BNSF getting the SP from New Orleans to Beaumont from the UP-SP merger. That would create 4 Chicago to Texas routes.
I’m not familiar with the New Orleans-Baton Rouge line, but could it make a good route for future passenger service between those points? I think it was on Amtrak’s wish list. Maybe they (or the state) could snap it up.
It’s possible, but our government here isn’t exactly pro-rail. There has been talk of reviving passenger service to Baton Rouge (perhaps as part of the proposed service to Mobile) for years, but nothing has happened.
How many KCS jobs will be lost as they handle many if not most of the industries along that stretch. You mean the CN is going to double their jobs on their line? No way they already cutting crews and furloughing people. No way the STB should allow this merger. They are going to have to give up more then just this 70 mile stretch and prove its not affecting personnel. A shear ploy
With CSX’s recent focus on expanding carload traffic via Pan Am Railways and chemical traffic via Quality Carriers, perhaps they would be interested in KCS’s New Orleans-Baton Rouge line?
I hope Amtrak or Louisiana DOT takes it.