Support Builds for CN-KCS, CP-KCS Merger Proposals

Proposed merger partners CN and Kansas City Southern (KCS), and KCS rival partner Canadian Pacific, on June 28 reported additional support for their respective combinations. It is the final day of the Surface Transportation Board's (STB) public comment period on the CN-KCS voting trust.

CN and KCS said that 186 new support letters have been submitted to the STB, bringing the total to more than 1,650. All the letters filed June 28 “support the companies’ request that the STB approve the proposed voting trust agreement,” and 105 also back the CN-KCS combination itself, the railroads noted. (Download the letters from the STB website.) Of the total number of letters submitted to STB so far, 940 support the trust, they added.

CP reported that the three-member North Dakota Congressional Delegation has filed with STB a letter of support for the CP-KCS combination (download below). The members, all Republicans, are U.S. Sens. John Hoeven and Kevin Cramer and U.S. Rep. Kelly Armstrong. The Class I railroad reported June 21 that more than 1,050 letters have been “filed in support of CP’s proposed combination with KCS or in opposition to the CN proposal.”

In their announcement, CN and KCS said that Rep. Sam Graves (R-Mo.), the Ranking Member of the House Committee on Transportation and Infrastructure, wrote one of the newest letters supporting their combination. In his letter, the railroads said, Rep. Graves:
• “urge[s] approval of the voting trust.”
• writes that the “CN/KCS trust should meet the unlawful control test, and also meet the public interest financial test.”
• notes that “KCS is well-established and well respected within the Kansas City area, and merging with CN will create new opportunities for trade and economic growth in the metro area and beyond. From a national and international perspective, the CN/KCS merger has the potential to improve commerce and access to markets by creating a single railroad that will streamline the movement of goods among Canada, the United States, and Mexico.”

Among the recent supporters from along the CN and KCS networks are Mayor-President Sharon Weston Broome of Baton Rouge, La.; the Board and executives of the Baton Rouge Area Foundation; Louisiana Gov. John Bel Edwards; and the Port of New Orleans, according to the Class I railroads.

The railroads also reported that four letters of support have been filed from three local unions affiliated with Brotherhood of Locomotive Engineers and Trainmen (BLET), which collectively represent more than 1,700 engineers working on CN’s U.S. rail operating subsidiaries and about 200 engineers working on KCS. Other supporters: Ray-Carroll County Grain Growers and Raeford Farms of Louisiana.

In their June 28 STB filing that included the letters, CN and KCS noted they are “pleased that so many stakeholders recognize that the trust proposed by CN and KCS, which is identical to the CP trust approved by the STB, meets the test for approval because it: (a) prevents premature control of KCS; (b) allows KCS to maintain independence during the STB’s review of the ultimate combination of CN and KCS; and (c) protects KCS’ financial health during this period. It also enables KCS shareholders to realize the full value of their shares prior to the STB’s subsequent review of the merits of the proposed combination.”

“CN and KCS look forward to further comment and engagement from their stakeholders during the STB’s official public comment period, which will be open until the end of the day today, June 28, 2021, as they work towards gaining approval of their voting trust and completing their combination,” the railroads said in a statement.

(On June 17, CN and KCS reported receiving an additional 100 letters in support of their proposed merger.)

As part of CP’s June 28 announcement, it provided the North Dakota Congressional Delegation’s support letter. The Delegation wrote, in part:

“Canadian Pacific Railway is one of two Class I freight rail providers in North Dakota, both of which provide integral market access for much of North Dakota’s commodity driven economy.

“As a state rich with natural resources, including agricultural products, crude oil, and others, producers in our state rely on freight transportation to move their products to market.

“Currently, shippers in North Dakota have direct access to ports in the Pacific Northwest, and thus much of Asia, through rail transportation provided by both Canadian Pacific and Burlington Northern Santa Fe (BNSF). A KCS/CP merger would create the first Class I railroad with track in Canada, Mexico, and the United States, opening access to new markets for our State’s producers in Mexico, while also providing a more direct route to markets in the Southern United States.

“This in turn would increase competition and help our agricultural producers continue to provide the highest quality, lowest cost food supply in the world, while also contributing to our nation’s energy independence.

“Further, a KCS/CP merger would preserve the competitiveness of the rail industry among the limited number of Class I carriers operating in the U.S.”

CP also said that it plans to file comments on CN’s proposed voting trust, “explaining why the public interest costs of CN’s proposed voting trust outweigh the non-existent benefits. This public comment period, and the STB’s subsequent deliberations, will determine the course of competition for U.S. railroading and North American commerce for the next 150 years.

“Importantly, the STB has already approved CP’s use of a voting trust and affirmed KCS’ waiver from the new rail merger rules it adopted in 2001 because a CP-KCS combination is truly end-to-end, pro-competitive, and the only viable Class I combination.”

CP reiterated that it is “continuing to pursue its application process to acquire KCS so that the pro-competitive CP-KCS combination can be reviewed by the STB and implemented without undue delay, in the event KCS’ agreement with CN is terminated or CN is otherwise unable to acquire control of KCS.”

CP reported on June 21 that another 80 stakeholders had filed statements with the STB “expressing concerns” about the proposed CN-KCS merger, its use of a voting trust, or both. The total was more than 330, according CP.

On June 25, the Class I railroad reported that grain and other shippers across North Dakota, South Dakota and Minnesota had submitted letters to the STB opposing CN-KCS combination, its use of a voting trust, or both.