Definitive? CSX Acquiring Pan Am Railways

North Billerica, Mass.-based Pan Am—previously known as the Guilford Rail System, itself a combination of the Boston & Maine, Maine Central, Portland Terminal Company and Springfield Terminal Railway—owns and operates a nearly 1,200-mile rail network and has a partial interest in the more than 600-mile Pan Am Southern system.

CSX announced Nov. 30 it had signed a definitive agreement to acquire Pan Am Railways, Inc., the 1,800-mile Class II in New England, expanding its reach in Connecticut, New York and Massachusetts, while adding Vermont, New Hampshire and Maine to its existing 23-state network.

Terms of the deal were not disclosed. It is subject to regulatory review and approval by the Surface Transportation Board (STB).

North Billerica, Mass.-based Pan Am—previously known as the Guilford Rail System, itself a combination of the Boston & Maine, Maine Central, Portland Terminal Company and Springfield Terminal Railway—owns and operates a nearly 1,200-mile rail network and has a partial interest in the more than 600-mile Pan Am Southern (PAS) system.

CSX announced earlier this month it was in negotiations to acquire Pan Am Railways, prompting a Norfolk Southern filing with the STB.

Railway Age reported that NS has a $140 million joint venture with Pan Am called PAS, which gives the former access to New England via trackage rights on the former Boston & Maine Mechanicville, N.Y.-Ayer, Mass., main line. In its STB filing, NS noted that “one of the main benefits of … joint control and ownership of PAS was to strengthen competition with CSX Transportation. Any CSXT effort to acquire Pan Am would threaten to materially undermine this existing competition, thus impacting not only NS, but also rail shippers and other railroads. NS is concerned with CSXT’s potential acquisition of Pan Am, specifically its interest in PAS, and is further concerned with CSXT’s potential use of a voting trust to acquire Pan Am,” which NS said would create “competitive harm.”

In its Nov. 30 announcement, CSX said, “the transaction will provide significant benefits to shippers and local communities as CSX integrates Pan Am into its best-in-class network.”

“In Pan Am, CSX gains a strong regional rail network in one of the most densely populated markets in the U.S., creating new efficiencies and market opportunities for customers as we continue to grow,” CSX President and CEO James M. Foote said. “We intend to bring CSX’s customer-centric focus and industry-leading operating model to shippers and industries served by Pan Am. We look forward to integrating Pan Am into CSX, with substantial benefits to the rail-served industries of the Northeast, and to working in partnership with connecting railroads to provide exceptional supply chain solutions to New England and beyond.”

Pan Am Railways President David A. Fink added: “Pan Am is pleased to reach this agreement with CSX, a North American leader in rail-based freight transportation. This is great news for New England shippers and the national freight network overall.”

Goldman Sachs & Co. LLC is acting as financial advisor and Davis Polk & Wardwell LLP is acting as legal advisor to CSX in connection with the transaction.

NS responds:

“In 2009, Pan Am Railways and Norfolk Southern negotiated a pro-competitive joint venture that resulted in the creation of Pan Am Southern. That transaction was approved by the Surface Transportation Board in large part because the joint venture provided competition in the marketplace. Over the past decade, Norfolk Southern has ensured the success of that venture, and remains committed to it today. We now understand that CSX is poised to acquire Pan Am Railways. We are carefully considering the effects of this transaction, especially any competitive harm to the marketplace. We remain committed to working with any potential Pan Am Railways purchaser, the STB, and any other applicable regulatory agencies to protect shippers, commuters and rail passengers throughout the New England market.”