US okays $31bn railroad merger
A federal regulator Wednesday approved a Canadian freight railroad’s plan to buy a US competitor, a US$31 billion deal that will make the railroad the first to operate across North America.
In approving the deal, the regulator, the Surface Transportation Board, said the new single-line service would shift about 64,000 truckloads a year to rail from the roads, potentially enhancing safety and reducing carbon emissions, and add more than 800 union jobs in the United States.
The Surface Transportation Board said the merger would not reduce competition.
“On balance, the merger of these two railroads will benefit the American economy and will be an improvement for all citizens in terms of safety and the environment,” Martin J. Oberman, the chairman of the five-member board, said at a news conference Wednesday.
Under the merger plan, Canadian Pacific, the sixth-largest freight railroad by revenue operating in the United States, agreed to buy the next-largest carrier, Kansas City Southern.
The combined railroad will not overtake the fifth-largest carrier, Canadian National.
The deal is the first merger between two major railroads since the 1990s. It also culminates a yearslong campaign by Canadian Pacific to grow.
The company had unsuccessfully pursued mergers with several other large railroads, including Norfolk Southern and CSX, over the past decade.
Canadian Pacific said it could take control of Kansas City Southern as soon as April 14, creating a new carrier, Canadian Pacific Kansas City.
The company expects to spend three years combining the railroads. The combined company, based in Calgary, Alberta, will operate about 20,000 miles of track and employ about 20,000 people.
“This decision clearly recognises the many benefits of this historic combination,” Keith Creel, the chief executive of Canadian Pacific, said in a statement.
“As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network and drive economic growth.”
The merger is known as an “end-toend” combination because there is little overlap between the companies’ networks, a feature unique among recent railroad mergers, Mr Oberman said.
“There will be no loss of a parallel competitive route by putting these two railroads together,” he said. “That is a central fact of this decision.”
While the board approved the merger, it did impose some conditions. The railroads will have to keep open their existing gateways, interchanges where railroads meet and shippers have the opportunity to move their goods from the trains of one company to another.
The board also created a process that will allow shippers to challenge certain rate increases by the new company. And it required Canadian Pacific to provide extra data over a seven-year period so the board could monitor compliance with the conditions it is imposing to approve the merger.
The decision came amid mounting concerns with the deal.
In a letter to the Surface Transportation Board in January, the Justice Department said that it had “serious concerns” about industry consolidation and asked the regulator to carefully scrutinise the merger.
Senator Elizabeth Warren asked the transportation board to block the deal outright, saying it would reduce competition and could result in higher shipping costs, fewer jobs and more service disruptions.
“This merger clearly fails the public interest test, and accordingly, I ask STB to uphold the law and deny it,” she wrote in a letter.