Feds reject initial CN plan for merger with Kansas City railroad that's drawn ire from some suburbs
It wasn't a knockout punch, but federal regulators' rejection of an important component of the Canadian National Railway's bid to buy the Kansas City Southern Railway might signal good news for suburbs opposing the merger.
The U.S. Surface Transportation Board on Monday nixed CN's request to create a "voting trust" that would hold KCS's stock until the merger is decided on by STB members.
"The board finds that the proposed use of a voting trust ... would not be consistent with the public interest" and "would give rise to potential public interest harms relating to both competition and divestiture," members wrote in a ruling announced Tuesday.
A number of municipalities from Bartlett to Barrington urged the STB to deny the plan, fearing a merger would add to freight train traffic and delays that surged when the board in 2008 approved CN's purchase of the smaller EJ & E Railroad, which runs through multiple north, west, and south suburbs.
Also weighing in was the Canadian Pacific Railway, initially embraced by Kansas City Southern as a merger partner this spring, only to be dumped when CN moved in.
"The STB decision clearly shows that the CN-KCS merger proposal is illusory and not achievable," Canadian Pacific President Keith Creel said in a statement. To Kansas City Southern's board, he wrote, "CP has always maintained that the CN-KCS combination and the proposed CN voting trust is not in the public interest," Creel said. "Hundreds of rail shippers, community leaders, elected officials and other stakeholders have voiced those same concerns and today the STB agreed."
CN did not comment Tuesday on the decision, which might not auger well for the success of its actual merger proposal.
But on Aug. 12, CN leaders said in a news release that with KCS, "together, we will enhance competition, drive economic growth and realize the benefits of a fully end-to-end transportation network connecting North America."
When the STB sided with CN in 2008, the board agreed with the Canadian railroad that a merger with the EJ & E would more evenly distribute freight train traffic around the Chicago region.
This time, officials said joining two such massive railroads raised concerns about monopolies. Approving the trust would be "an advantageous scenario for KCS shareholders and CN at the expense of the public interest in mitigating risks to competition and the stability of the rail network."
Because a voting trust can be subject to manipulation, the STB typically reviews such requests to ensure that they maintain the independence of the railroad to be acquired, experts explained. If a voting trust is approved, the stock will remain in the trust until the STB approves the merger.