CN + KCS Proposal: Stakeholders Speak Out (UPDATED)

Written by Marybeth Luczak, Executive Editor
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Customers and other stakeholders are voicing support as well as concerns to the Surface Transportation Board (STB) about CN’s proposed combination with Kansas City Southern (KCS), according to simultaneous press releases from CN and Canadian Pacific.

On April 20, one month after CP and KCS announced their intent to merge into CPKC (Canadian Pacific Kansas City), CN announced a counter-offer. It reported on April 29 that more than 600 customers, suppliers, elected officials and other stakeholders filed statements of support with the STB for the CN-KCS proposal due to the “extensive pro-competitive benefits.” CN followed that on May 4 with a similar statement upping the number to 720, adding, “Of note, 66 of the letters filed with the STB explicitly support CN’s proposed combination with KCS, and 34 of the letters specifically ask the Board to approve CN’s use of a voting trust.” And as of May 7, CN reported it had received more than 800 letters of support.

CP released a statement May 3 that more than 110 stakeholders have filed letters expressing “concerns about and/or opposition to Canadian National’s unsolicited proposal for Kansas City Southern.”

CN: Stakeholder Support

Among the CN-KCS merger proposal supporters are the Alabama State Port Authority (ASPA) as well as the Port of New Orleans (Port NOLA) and its Public Belt Railroad (NOPB). According to CN, ASPA stated that the merger would enhance “end-to-end single owner, single-operator service resulting in a faster, safer and more economical rail option for our shippers, while retaining the Port’s competitive posture in the markets we serve”; and Port NOLA pointed out that “[t]his merger offers a unique opportunity to fuel economic growth across North America while reducing freight congestion, helping the environment and increasing transportation efficiencies.”

CN reported that its combination with KCS “will provide each railroad’s customers with more network access, including an additional 22 Class I gateways, five ports and 10 barge terminals for KCS customers. More options and greater choice will allow customers to pivot to new opportunities, develop new markets and optimize their freight return on investment. Multiple new North-South routing options will also introduce unmatched network resiliency in all seasonal and adverse weather conditions, from Texas to the Midwest to Canada.”

CN President and CEO JJ Ruest

“CN’s customers and other stakeholders recognize that our proposal to combine with KCS will enhance competition, and we are grateful for, but not in the least surprised by, their overwhelming enthusiasm to see this combination brought to life,” CN President and CEO JJ Ruest said. “Together, CN and KCS will create a robust network that enhances routing choices and price competition for customers by introducing new access and interchange options. We will create valuable new express services that do not exist now. Many customers will get new and better transportation choices, and importantly, no customers will be left without multiple transportation choices. We look forward to continuing our discussions with the KCS Board so that we can create the premier railway for the 21st century and immediately begin delivering the many pro-competitive benefits of this transaction.”

On May 3, Ruest and CN COO Rob Reilly issued an open letter to the KCS community, regarding the railroad’s “superior proposal” to combine with KCS.

CP: Stakeholder ‘Concerns’

On May 3, CP announced that 110-plus stakeholder letters to STB “highlight growing concerns that the CN-KCS combination would reduce competition in the Canada-U.S.-Mexico corridor.” The North Dakota Grain Dealers Association (NDGDA), Farmers Cooperative of Hanska, the US Development Group, and Premier of New Brunswick Blaine M. Higgs are among them, the railroad said.

CP pointed to the following “notable excerpts”:

• NDGDA: “The backbone of North Dakota’s economy is agriculture and over 80% of North Dakota’s grain moves to market by rail. North Dakota grain shippers are in a captive rail market, which limits competition and our options for market destinations. A CP-KCS combination should provide CP grain shippers expanded access to markets across the United States, Mexico, Canada, and even internationally. The bid by CN would effectively end any opportunity for market expansion for North Dakota CP grain shippers.”

• Farmers Cooperative of Hanska: “A CN-KCS combination would do nothing to benefit Farmers Coop of Hanska and our U.S. Upper Plains grain shipping facilities but would instead decrease competition overall.”

• US Development Group: “[W]e have no indication of CN’s receptivity to potential expansion into markets desired by our current and future customers both in Mexico and North America. We believe a CN-KCS merger would provide inferior service options. From our perspective, the only combination involving KCS that is in the public interest is the one that CP has proposed.”

Blaine M. Higgs

• Blaine M. Higgs, Premier of New Brunswick: “I urge the U.S. Surface Transportation Board to reject CN’s request for a voting trust structure and reject any waiver from a full public interest review for CN’s voting trust proposal. On the other hand, since CP’s proposed acquisition of KCS raises none of the same competition concerns and would in fact enhance competition and further level the playing field for rail shippers in North America, the Board should approve its proposed voting trust.”

CP also reported that it had received nearly 500 letters of support for the CP-KCS transaction. It added that the STB, in its April 23 decision to review the CP-KCS transaction under the pre-2001 merger rules, noted that a CP-KCS combination would “result in the fewest overlapping routes when compared to a merger between KCS and any other Class I carrier” and “if approved, the combination of CP and KCS, the sixth-largest and seventh-largest Class I railroads, respectively, would still result in the smallest Class I railroad, based on U.S. operating revenues.”

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