CSX OK With STB Reviewing CP-KCS Merger Under Old Rules

CSX is the lone Class 1 North American railroad system not to object to the efforts of Canadian Pacific and Kansas City Southern to get the U.S. Surface Transportation Board to impose 1990s era rules in reviewing their proposed merger.

CP wants to buy KCS in a $29 billion transaction. Two decades ago the STB granted KCS a waiver from new merger review rules that became effective in June 2001 if it sought to combine with another Class 1 system.

Norfolk Southern, BNSF, Union Pacific and Canadian National did object and asked regulators to consider the merger under the 2001 rules.

CN has since proposed to buy KCS in a $33.7 billion cash and stock transaction.

In a letter to the STB, CSX said it intends to comment on the merits of the transaction at a later date.

In the meantime, it supported the STB applying the waiver to the CP-KCS merger.

“Successful consolidation proponents have traditionally met the public interest standard in the statute by demonstrating that the efficiencies expected to result from their transaction, with reasonable mitigation of potential reductions in competition, would result in more competitive and efficient rail transportation,” CSX said in its letter.

“The applicants should have to do that here. To achieve that goal, however, there is no need to subject the transaction to the uncertainties associated with the 2001 rules.”

Railroad economist Jim Blaze said NS may be seeking greater scrutiny of the merger because it serves Kansas City whereas CSX does not.

“Kansas City Southern and Canadian Pacific are so small in network now that we’re not talking about globs of traffic that is going to get shifted and diverted,” Blaze said. “We’re talking about minor flows over certain selective lanes.”

Agreeing with that assessment was Nick Little, the managing director of the Railway Management Program at Michigan State University.

“If there was going to be a merger that had a minimal impact, this would be the one,” Little said. “The two routes that Canadian Pacific and Kansas City Southern have, they really don’t duplicate each other. They interchange at one point in Kansas City. It gives Canadian Pacific the same sort of advantage as Canadian National has in that they have access to both coasts and with the Gulf of Mexico. That means they have a really good opportunity to have one company to consignments in a given area.”

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