CP-KCS Merger to be Evaluated Under Old Rules

The U.S. Surface Transportation Board voted on Friday to review the proposed acquisition of Kansas City Southern by Canadian Pacific under its old merger rules.

In a 4-1 vote, regulators agreed that they would honor a waiver granted to KCS from the 2001 rules governing Class 1 railroad mergers.

In announcing the decision, board members said the combined CP-KCS would be the smallest Class 1 system based on operating revenue.

Another factor was that the merger would represent a largely end-to-end combination with little overlap.

This, the STB said, “likely raises fewer competitive concerns than a transaction that is not end to end,” means that the proposed deal “appears to fall neatly into the Board’s rational for adopting the waiver in the first instance.”

The 2001 merger rules have yet to be applied by regulators in a Class 1 merger case. Those rules, which call for a more stringent review process, were adopted after a spate of mergers in the 1990s.

In dissent, STB member Robert Primus argued that the fact CP-KCS would be the smallest Class I railroad network is irrelevant.

“Their impact on the network is significant and deserving of the type of thorough review detailed under the current merger rules,” he wrote.

Primus said the public interest demands review of a full system competitive analysis, operating plans in Canada and Mexico, service assurance plans, and an assessment of cumulative impacts of the proposed merger, none of which are obtainable under the old, outdated merger rules.

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