50 Years Ago Today Came Penn Central

A fading Penn Central herald atop a Pennsylvania Railroad keystone adorns a covered hopper car on the Wheeling & Lake Erie in Monroeville, Ohio. Some former PC rolling stock is still in active service.

It was 50 years ago today that the Pennsylvania Railroad and the New York Central System merged to form Penn Central Transportation Company.

We all know that the merger turned out badly. There were clashes between the cultures of the two one-time largest railroads in the nation, leading to the terms “red team” and “green team.”

Five decades later, some railfans are still fighting the red-green “civil war” even if in jest.

Both the Pennsy and the Central had been struggling financially for years and the result was an even larger railroad that continued to struggle.

Just over four years later, Penn Central sought bankruptcy protection. It was at the time the largest corporate failure in history but has since been eclipsed by the Enron bankruptcy of 2001. A little over eight years after it began, Penn Central the railroad was gone.

We also remember how the PC bankruptcy played a role in nudging Congress into creating the National Railroad Passenger Corporation, a.k.a. as Amtrak; had a role to play in the creation of the Consolidated Rail Corporation, a.k.a. as Conrail; and helped set up passage of the Staggers Act of 1980, which was a major step in transforming how railroads in the United States are regulated by the federal and state governments.

I’m oversimplifying things here because the creation of Amtrak, Conrail and deregulation were complex processes that can’t be traced in any one single event.

But Penn Central played an out-sized role in all of those because of the sheer magnitude of its failure.

Much has been written about the woes of Penn Central, including three books and countless articles.

As I pondered the legacy of PC, I was reminded of a conversation I had with a fellow Akron Railroad Club member at a train show a couple of years ago.

Noting that there is a Penn Central Historical Society, my fellow ARRC member wondered why anyone would be interested in celebrating a failed railroad.

In its day, Penn Central was known for bad tracks; frequent derailments, including trains that derailed while standing still; lost shipments; hostility toward passenger service and financial losses.

I don’t belong to the PC historical group, but I can explain why a “failed” railroad would have appeal to some.

Penn Central came about during a time when many people were coming of age and starting to learn about railroad operations in some detail.

Although the problems that Penn Central had have been magnified due to its bankruptcy, it was far from the only railroad in the late 1960s and early 1970s that was struggling. Indeed Conrail grew out of the ashes of several bankrupt railroads.

Arguably, Penn Central and all of it problems needed to happen for America’s railroads to make the transition from a highly regulated era to one of relative economic freedom.

Of course, that meant that dozens of flags had to fall and thousands of miles of track had to be pulled up. Thousands of people would lose their railroading careers.

The railroad network of the late 1960s was not economically sustainable. The manufacturing economy of the Midwest and Northeast was crumbling and railroads were suffering with it. There was too much railroad infrastructure for the business to be had.

This is not to say that the industry was without fault in bringing about its own struggles. But it’s a complex story involving a multitude of factors.

We can always speculate about how things might have been different had Penn Central been given the freedom from government regulation that Conrail enjoyed.

Some of the route rationalizations that Conrail was able to pull off had been objectives that Penn Central sought to achieve, but was thwarted by the regulatory structure at the time.

The political climate in which Penn Central was created was not conducive to implementing those grand plans.

As bad as Penn Central was, I find myself at times looking back at it with a certain nostalgic longing.

I would not want to see railroads operate today as Penn Central did, but time has a way of putting things into perspective. Penn Central was the last gasp of railroading as our parents’ and grandparents’ generations knew it when they came of age. My generation was able to taste only some of it.

Every generation has one or more things that it laments having lost from its youth whether it is steam locomotives, a favorite railroad or a rail line that you grew up with.

And so it was with Penn Central. It was once a major presence in my life and then like so many other things it was taken away. These losses tend to have greater effect on you during your young adult years. They also tend to stay with you in ways that later losses in life do not.

Some might say “good riddance” about the demise of Penn Central, but I find it a compelling story and one worth remembering and even celebrating.

Maybe Harrison Just Wanted the NS Top Job

I’m going to miss E. Hunter Harrison. He was always good for at least one posting a week and journalists love colorful guys who like to talk a lot to the media.

Now that Harrison and his financier Bill Ackman – the majority stockholder in Canadian Pacific – have folded their tent and retreated to Calgary after their failed campaign to acquire Norfolk Southern, things are going to return to normal, whatever that might be in a world in which rail traffic continues to decline.

Thousands of words are going to be written and spoken during the coming days and months about why CP failed to win over NS.

Most of those treatises will zero in on what Harrison did or didn’t do right in his efforts to merge CP and NS.

Already, Trains magazine columnist Fred Frailey has weighed in by saying that Harrison’s greatest mistake was to lose the political battle.

Frailey said that rather than emphasizing an operating plan Harrison should have formulated a political strategy to win over shippers and key political figures.

Once CP’s plan to merge with NS triggered intense political opposition the game was over.

That Harrison emphasized his operating plan – which he calls precision railroading – didn’t surprise me.

Precision railroading is his legacy, his claim to fame among a dozen other railroad CEOs. He’s written two books about it and the CP-NS merger dance gave him innumerable opportunities to talk about it.

I always thought that one of Harrison’s primary objectives all along was to take personal control of one of the big four U.S. Class I railroads so he could impose his philosophy of railroading on a larger stage.

It was one thing to do it at regional railroad Illinois Central or at two Canadian carriers.

Now, CP and Canadian National are just as big time as NS or CSX, but they are still Canadian carriers that happen to own a significant number of miles of track in the United States.

They don’t have quite the same networks or business mix as the big four of U.S. Class 1 carriers.

Harrison strikes me as being on a mission to show that his railroading philosophy not only works but is superior to the approaches used by other Class 1 carriers.

Although associated in the minds of many with Canadian railroads, Harrison is actually a Southern guy, having grown up in Memphis, Tennessee.

The IC was a well-run operation and Harrison has won a lot of respect in the railroad world.

One former CP manager who was part of the management team that Harrison and Ackman ousted after taking over CP said that Harrison “gets it” when it comes to running a railroad. The ex-CP executive had other complimentary things to say about Harrison even if he thinks Harrison gets a little too much credit for the so-called CP turnaround.

What he understood is that railroads make money moving freight cars, not allowing them to sit in railroad yards or sidings. Keeping freight moving was a cornerstone of Harrison’s precision railroading philosophy, even if it meant tacking a few low-priority boxcars onto the rear of a hot intermodal train.

Harrison is not going away. He’ll still be running CP, still be giving interviews and speeches, and still promoting his vision of how a railroad should be run.

I was surprised that Harrison and Ackman bailed out before the NS shareholder’s meeting next month.

But they might have been “encouraged” to do so by the opposition of the U.S. Department of Justice.

The Justice Department didn’t oppose merging the two companies per se. Rather it expressed concern about the voting trust arrangement that CP proposed which had Harrison and some of his associates going over to NS at the start of the merger review process by the Surface Transportation Board.

Perhaps the Justice Department opposition and/or some back channel communication from the STB convinced Harrison and Ackman that regulators were not likely to rule in their favor in the STB review of a hypothetical voting trust arrangement that CP asked them to examine.

The fact that Harrison couldn’t wait a year or two for the merger review process to play out showed how much he wanted to be CEO of NS now and suggests that for him personally it has always been about influence, control and legacy.

He didn’t really need for CP to buy NS to do what he wanted to do. Perhaps the proposed takeover was just his way to get into the NS executive suite.

Harrison might not have cared all that much if the STB rejected the merger because he would continue leading NS and running it his way.

We can expect Harrison to continue to beat the drums about the need for further consolidation in the North American Class 1 railroad industry but his words will receive less attention than they did when he was trying to take over NS.

That is not to say that further merger talks aren’t down the tracks. The climate today may not be right for a merger to create a transcontinental railroad, but it is not to say it that won’t change.

For now the Class 1s seem content to rule their own fiefdoms. Goodness knows they have plenty of challenges at hand, including dealing with declining coal and crude oil traffic. Bulk commodities aren’t what they used to be and railroads might have to start competing for less than carload or short-haul business that they long ago all but ceded to trucking companies.

Finding other business to replace coal is much on the minds of railroad CEOs these days.

However, sluggish business conditions have a way of encouraging mergers in corporate America. It may be that NS is amenable to a merger but would rather have danced with another partner.

DOJ Opposes CP Voting Trust Arrangement

A powerful opponent has lined up in opposition of Canadian Pacific’s plan to acquire Norfolk Southern.

The U.S. Department of Justice on Friday told the U.S. Surface Transportation Board that CP’s proposed voting trust would compromise the independence of NS before the STB could finish its review of the proposed merger.

CP has proposed placing itself into control of a voting trust during the merger review process.

CP CEO E. Hunter Harrison and select members of his CP management team would then take over the management of NS.

“Canadian Pacific’s voting trust proposal would compromise Norfolk Southern’s independence and effectively combine the two railroads prior to completion of the STB’s review,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division. “That makes no sense. We urge the STB to preserve its ability to review the impact of the proposal on competition and consumers before Canadian Pacific starts scrambling the eggs.”

The Justice Department said the two railroads would have an economic incentives to align their business strategies before the merger has been reviewed and that those arrangements would be difficult to undo if the STB rules against the merger.

“The STB should reject the proposed voting trust structure because it risks altering the competitive landscape between the two railroads and indeed the entire rail system in a way that could not be reversed if the STB rejects the merger,” the Justice Department said in a filing with the STB.

“In reality . . . CP hopes to use Mr. Harrison as its proxy to implement the changes it desires at NS,” the Justice Department filing said.

Earlier this year, CP asked the STB to review whether a hypothetical trust structure would pass legal muster.

The STB has not said when it will rule on that request, but it has set an April 13 deadline for the submission of statements by interested parties.

Typically, a voting trust is put in place at the company to be acquired not at the company making the acquisition.

A CP spokesman expressed disappointment with the position of the Justice Department.

“Voting trusts have long been recognized by the STB, regulators and the courts as an effective means of insulating the carriers from unlawful common control during regulatory review,” said CP spokesman Martin Cej. “We strongly believe Mr. Harrison would be completely independent and clear from any influence at CP if he were to assume the role of CEO at NS.”

CP Issues White Paper Making the Case for ‘Precision Railroading’ at Norfolk Southern

Canadian Pacific has given Norfolk Southern stockholders a reading assignment in advance of the NS annual meeting on May 12.

In a white paper, CP seeks to make the case for how its “precision railroad philosophy” would improve NS operations by transforming it from an “industry laggard to leader.”

“Politicians, shippers and others are calling for a strong, healthy and high-performing rail system yet no one has the stomach to challenge the status quo,” said CP CEO E. Hunter Harrison in the paper. “Clearly, moving goods reliably and efficiently is top of mind for everyone in the industry; we believe precision railroading and a CP-NS combination address those challenges.”

The white paper, which was part of a series that CP has issued over the past few months to make the case for its proposed takeover of NS, said that precision railroading has enabled CP to reduce its operating ratio, improve service, reinvest record amounts of dollars in its network and create “significant shareholder value.”

A PDF version of CP’s latest white paper can be downloaded at http://www.cpconsolidation.com.

CP described precision railroading as a tried and tested approach that has already transformed two of the worst-performing Class I railroads into top performers.

The latter was a reference to CP and Canadian National, where Harrison was CEO for several year. Harrison also applied his precision railroading approach at the Illinois Central when he headed that railroad before moving to CN.

“Over the last 20-plus years, Mr. Harrison’s execution of precision railroading has transformed three Class I railroads into the best-run railroads in the world,” CP’s white paper said. “The likelihood is high that, under his leadership and guidance, NS can achieve similar success and perform far better than its management currently believes possible.”

The white paper noted that the previous management of CP had claimed during a 2012 proxy fight with Harrison and financier Bill Ackman of Pershing Square Capital Management that precision railroading would not work at CP.

“But precision railroading is a set of non-discriminating principles that can be effectively applied to any railroad in the world,” the white paper asserts. “Geographic, network, and business mix differences are irrelevant in the application of the underlying principles that guide day-to-day decisions.”

Harrison has stated that his operating philosophy has five foundations of improving customer service, controlling costs, optimizing asset utilization, operating safely, and valuing and developing employees. “These five foundations can be applied to any railroad with the same result,” the paper said.

The white paper said that after implementing precision railroading practices, CP was able to slash transit times, increase system velocity and reduce terminal dwell times.

By increasing efficiency, CP cut its locomotive fleet size by 40 percent and saw its operating ratio fall from 81 percent to 61 percent.

“The prevailing view in the rail industry is that more locomotives, more cars and more crews allow for the movement of more volume,” CP said. “Precision railroading challenges this view.

“Because track and yard capacity is finite, adding more equipment creates congestion and slows down the system. While it may sound counterintuitive, reducing fleet size actually enables a railroad to move more volume. By running fewer and heavier trains, faster and on schedule, assets can be utilized far more productively and can yield significant savings.”

As an example of how precision railroading has worked, CP said it has increased domestic intermodal traffic by 19 percent between 2012 and 2015.

CP claims it could achieve $1.2 billion annual savings at NS by shifting it to the precision railroading model.

Among other things, Harrison has suggested that NS would be able to mothball up to a third of its locomotive fleet.

NS CEO James Squires, though, has described precision railroading as a “short-term focused operating model” that would result in service deterioration, diversion of traffic to trucks, and a loss of service-sensitive customers.

Squires said that the CP approach would mean unacceptably deep reductions in capital spending and employment levels.

NS has begun to implement its own five-year strategic plan to gain $650 million in annual savings by 2020 by reducing expenditures, seeking new traffic and increasing profitability.

CP interests are sponsoring a resolution to be voted on by NS shareholders that would direct NS management to discuss a merger with CP.

The resolution is non-binding and the NS board of directions is opposing it. The NS board also has rejected three offers from CP to buy NS stock.

Trains magazine interviewed a former CP executive who said that Harrison deserved some, but not all of the credit for improvements since he took over after the 2012 proxy fight.

The executive, who Trains did not name, said that under CEO Fred Green, CP had begun making progress by cutting $80 million from equipment rental payments, saving $150 million for the pension plan, closed intermodal terminals, reduced fuel consumption and begun operating longer trains with the use of distributed motive power.

“We were a lot further along the curve than people realize,” the former executive said.

The executive, though, did give Harrison and his team credit for being more aggressive through such moves as shutting down humps in several yards.

“Hunter’s a good railroader. He gets it,” the former executive said. “He drives the assets.”

The former CP executive operational efficiency and cost-cutting were not the sole drivers of CP’s rebound.

“Fundamentally the franchise needed top-line growth,” the former executive said. “CP needed to flex its muscles in terms of pricing. It’s done that well.”

Even before Harrison had arrived, CP management has discussed whether it was being aggressive enough with above-inflation pricing.

After Harrison arrived, CP’s total revenue increased by 18 percent between 2012 and 2015 although its total carloadings fell by 1.5 percent.

During that same period, CN saw its total revenue rise by 27 percent and its traffic grow by 8 percent. Last year CN led North American Class 1 railroads with the lowest operating ratio at 58.2 percent.

Whether the success of CN and CP in using precision railroading would translate well at a U.S.-based Class 1 remains an open question.

Trains magazine quoted railroad analyst Anthony Hatch as saying that it is not possible to draw conclusions about the growth rates of CP and CN due to their different traffic mixes, particularly their bulk and carload business.

“But you can say that CN has done a terrific job leveraging the precision railroading legacy of EHH into the New Model Railroad — one that combines efficiency, productivity, and marketing to grow faster than the rails as a whole, transports as a whole, and the continental economy,” Hatch said.

A former NS executive, though, is not enthusiastic about precision railroading as it might apply to NS.

In an interview with Trains, former NS CEO Charles “Wick” Moorman called precision railroading a recipe for disaster.

“If Hunter puts out an order to park 700 locomotives, I don’t even give it a week,” Moorman said. “The service would collapse. It’s just that easy.”

Pa. Congressman Opposes CP-NS Merger

A Pennsylvanian congressman is among the latest in a long line of public officials to express opposition to a proposed takeover of Norfolk Southern by Canadian Pacific.

Bill Shuster, who is chair of the House Transportation and Infrastructure Committee, said he did not believe a CP-NS merger would be in the best interests of the U.S. freight transportation system, railroad employees, rail shippers and short-line railroads.

Shuster thus joins other members of the Pennsylvania congressional delegation and Gov. Tom Wolf in raising objections to the proposed merger.

NS is a major employer in Shuster’s district, which includes Altoona and the Juniata Locomotive Shop.

“A strong, healthy, and well-functioning freight rail system is critical to the movement of goods in this country,” Shuster said in a statement. “However, CP’s pursuit of a merger over the last two years has done nothing but create uncertainty in the rail industry, and there continues to be no clear path forward for such an arrangement . . . I believe it is time for all parties to move on from hypothetical merger proposals and focus on improving the transportation of goods and products to help grow the American economy.”

NS Offers Opening on CP Merger Talks

As expected, Canadian Pacific has filed with the U.S. Securities and Exchange Commission a shareholder resolution to be voted upon at the annual meeting of Norfolk Southern on May 12 that directs the NS board of directors to conduct “good faith discussions” about a merger.

The Calgary-based CP intends to send letters to NS shareholders to outline the value of the proposed merger.

NS told the SEC in a proxy that it believes the CP-sponsored resolution is unnecessary because the NS board would be willing to discuss a merger with CP if the Canadian carrier obtains a declaratory order from the Surface Transportation Board and is willing to increase its offer.

CP has made three offers to acquire NS stock, but the NS board has rejected all three proposals.

The NS proxy filing signaling a willingness to discuss a merger was greeted warmly by CP.

“CP has consistently stated that we are open to discussing all terms of a potential deal, including price, but we can’t negotiate with ourselves,” said CP Chief Executive Officer E. Hunter Harrison in a news release. “Given we have also asked the Surface Transportation Board for a declaratory order on the voting trust model we were pleased to hear that Norfolk Southern may now be willing to engage in direct face-to-face discussions.”

In its statement of opposition, the NS board wrote that:

• It is open to all feasible alternatives to drive shareholder value.

• It has confidence in NS’ strategic plan, which aims to boost revenue and cut costs to reduce the railroad’s operating ratio to 65 percent by 2020.
• It has clearly communicated its concerns regarding CP’s acquisition proposals.
• CP has not addressed the board’s concerns regarding the value of its three merger offers or the regulatory risks of a merger.

It is unclear if the STB will issue before the NS annual meeting a ruling on the CP voting trust even though CP asked for one by May 6.

STB spokesman Dennis Watson said he couldn’t say when the board might rule.

Watson said the STB could issue a decision based on initial evidence or might begin a proceeding to ask the parties to submit additional evidence.

The latter would likely move a ruling by the board to date after the NS annual meeting.

“We have not heard anything from the STB on timing, and we are proceeding with our shareholder resolution,” said CP spokesman Martin Cej.

Although voting trusts are commonly used to insulate companies from unlawful control during a merger review process, CP has proposed an arrangement that the STB has never ruled upon.

CP proposed putting itself and not the company it wishes to acquire, into a trust. Harrison and other CP executives would sever their positions with CP and, presumably, take over as managers of NS.

Earlier, the STB set a deadline of April 8 for interested parties to file statements and participate in the declaratory order process.

Support to STB in Favor of CP-NS Merger is Mostly Form Letters from Small Canadian Shippers

A survey conducted by Stephens, Inc., has found that 70 percent of shippers are opposed to any merger of Class 1 railroads in North America.

Those findings by the Little Rock, Arkansas, company are similar to the results of a survey conducted last year by investment banking and research firm Cowen & Company that found 71 percent of shippers oppose a merger of Canadian Pacific and Norfolk Southern.

Those findings fly in the face of assertions by CP that its proposed takeover of NS enjoyed widespread shipper support.

An analysis by Trains magazine of letters written to the U.S. Surface Transportation Board found that most of the letters in support of the merger appear to be form letters that were written by small Canadian shippers.

Although the letters contained some variations, in many instances the letters are identical with the only change being the name of the shipper.

In at least two cases, the shipper failed to change the basic form of the letter and included the wording “Our ORGANIZATION/COMPANY” in the letter that it sent to the STB.

The Trains analysis said that of the 65 letters that the STB has posted on its website, 65 support the merger while 57 are against it.

Notable opponents of the merger include major shippers and trade groups. More than half of the shippers who wrote to support the merger are based in Canada.

The findings of the Trains analysis belie comments made by a CP spokesman in response to the findings of the Arkansas company about widespread shipper opposition to a merger.

“I cannot comment on someone else’s survey, but I can tell you that letters posted to the STB website from shippers in favor of the transaction outnumber shippers opposing the combination by three to one,” said Martin Cej.
CP said it has received letters from 80 shippers in support of the transaction.

Among those who have written in opposition to the merger are the Automakers Alliance, UPS, FedEx and Consol Energy.

Public officials who have written to the STB are united in their opposition and most short line railroad that have written are likewise opposed.

The STB has received four letters of opposition from four labor unions and from 52 groups that include port authorities and economic development officials.

Common concerns expressed by opponents include pricing, service quality and further consolidation of the railroad industry.

Although they have expressed public opposition to further mergers, none of the other Class 1 railroads have written to the STB in regards to the proposed CP-NS merger.

STB Sets Dates for Filings in CP Case

The U.S. Surface Transportation Board has set two dates in April for responses in Canadian Pacific’s request for a declaratory order pertaining to its proposed voting trust that would govern the railroad as it pursues a merger with Norfolk Southern.

The STB gave interested parties a deadline of April 8 to respond to the CP petition. CP will then have until April 13 to respond.

CP on March 2 had asked the STB to issue a decision by May 6, which would presumably be before the annual meeting of NS shareholders.

The Calgary-based railroad has said that it plans to place itself and its subsidiaries into an independent, irrevocable voting trust during the time that the STB would review its merger with NS.

Concurrent with that, CP CEO E. Hunter Harrison would sever all of his ties with CP and assume the position of CEO of NS.

The STB order setting the April deadlines for comment on the CP request for a declaratory order noted that various parties, including railroad labor unions and CSX, asked the board to allow 30 to 45 days for comment on CP’s request.

CSX also had asked that CP’s bid for a declaratory order be denied outright.

CP tells SEC About Plans for Resolution to be Presented at Annual NS Shareholders’ Meeting

Canadian Pacific has told the U.S. Securities and Exchange Commission about its plans to ask Norfolk Southern shareholders to instruct the NS board of directors to “promptly engage in good faith discussions with CP regarding a business combination.”

In its filing, CP  justified its desire for the merger with NS by saying it would create an integrated transcontinental railroad with the scale and reach to deliver unsurpassed levels of safety and service to the customers and communities of both companies.

E. Hunter Harrison

CP contends that some NS shareholders have expressed support for the merger since it was proposed last year and the resolution is an opportunity for those shareholders to be heard by the NS board.

The NS board has rebuffed three offers from CP to acquire NS stock.

“We are not asking NS shareholders to vote on the business proposal itself, but to vote in favor of the shareholder resolution calling for NS to engage in good faith discussions with CP regarding a potential combination,” said CP head E. Hunter Harrison.

NS has indicated a conditional willingness to talk with CP, but said it would only do so after CP addresses some concerns by the NS board about whether a proposed voting trust for CP would receive the approval of the U.S. Surface Transportation Board.

CP has since asked the STB to issue a declaratory order pertaining to the trust, which would remain in effect during the time that a CP-NS merger undergoes regulatory review. NS also has called on CP to increase the value of the acquisition.

“CP is seeking a declaratory order from the Surface Transportation Board and we have consistently indicated that we are open to discussing the terms of our previous offers,” Harrison said. “With a vote ‘for’ the shareholder resolution, we hope to get NS to the table to discuss all the elements of the proposed business combination in an open and constructive manner.”

NS has yet to set a date for its annual shareholders’ meeting.

In the meantime, Harrison said he wants to meet with shippers who have expressed public opposition to the merger after package delivery giant FedEx became the latest shipper to come out against the combination.

“My friends at Federal Express that I grew up with in Memphis, I don’t know where they gained all this knowledge on railroads,” Harrison told the Business News Network of Canada. “I was a little disappointed. I don’t mind people objecting to transactions but let’s discuss it first. There was no discussion and I would imagine someone asked them to object.”

FedEx has written a letter to the STB to express “significant concerns” about the proposed merger, including higher shipping costs, fewer services and “such an erosion of competition [that] would ultimately adversely impact the American consumer and our still somewhat fragile economy.”

Business News reported that Harrison believes “there is a strong possibility” that a deal will be made within a year.

CP Seeking STB Review of Trust Proposal

Canadian Pacific continues to turn up the heat in its pursuit of Norfolk Southern, this time by asking the U.S. Surface Transportation Board to issue an expedited declaratory review and order of its proposed voting trust.

CP said it expects the STB to confirm the viability of a voting trust structure whereby CP would be placed in trust during the regulatory review of the merger proposal.

The Calgary-based CP asked for a decision by May 6, presumably ahead of the annual meeting of NS shareholders.

“Shareholders of both CP and NS have asked that we seek this declaratory order as a means to better understand the STB’s views on the proposed voting trust model ahead of any formal application and we have listened to the owners of our respective companies,” said CP CEO E. Hunter Harrison. “Since we remain convinced that productive discussions about the potential structure and value of a formal bid must take place face to face we hope this show of good faith is met with an equal demonstration on the part of NS.”

At the NS shareholders’ meeting, interests representing CP will submit for a vote a non-binding resolution directing NS management to discuss a merger with CP.

The NS board of directors has rejected three offers from CP to acquire NS stock. Harrison has proposed severing all of his relationships with CP and becoming CEO of NS while the merger is reviewed.

CP’s filing with the STB indicated that Harrison might bring some current CP managers with him to NS.

Analysts say that although an STB declaratory order would review a hypothetical proposed trust—outside the established STB procedure for seeking formal trust approval—CP is hoping that the board’s ruling will offer enough clarity for NS shareholders “to make an informed decision on CP’s pending resolution.”

Harrison said that voting trusts have been used in hundreds of transactions involving regulated industries, including 144 transactions since deregulation of the rail industry in 1980.

“Trusts, besides protecting against unlawful control violations, are a key means of reducing the risk that the regulatory approval process will either interfere with the marketplace’s assessment of a merger or be used as a tool by management to fend off would be acquirers,” he said.

STB rules allow the board to respond to a petition within 20 days, but the board also could order an extension of another 20 days.

Railway Age reported that neither the STB or the Interstate Commerce Commission has ever approved a voting trust arrangement whereby the acquiring railroad is placed in trust rather than the railroad being acquired.

Nor has there been a situation in which the CEO of the acquiring railroad left to become the head of the railroad being acquired.

NS attorneys might call this a contrivance intended to circumvent the law.

CP has argued that its trust structure would protect NS stockholders and allow Harrison to implement precision scheduling railroading at NS, which he has said would make NS more efficient and more valuable.

“If the transaction ultimately were not approved there would be no plan or expectation that any of us would leave NS to rejoin CP,” Harrison wrote to the STB. “In fact, I plan to remain at NS until it has become an industry leader and can sustain that position before giving retirement a second chance.”