CP to seek declaratory order from Surface Transportation Board

Calgary-based Canadian Pacific railway last week launched a new website compiling details of and arguments for its proposed acquisition of number four U.S. railroad Norfolk Southern Corp.    Canadian Pacific will seek a declaratory order from the United States Surface Transportation Board (STB) regarding its proposed acquisition of number four U.S. railroad Norfolk Southern Corp., according to a statement from the company.
   The declaratory order aims to confirm the “viability of the voting trust structure that CP has suggested as part of its proposed merger with Norfolk Southern Corp. (NS).”
   Since deregulation of the rail industry in 1980, voting trusts have been used in 144 transactions overseen by the STB, according to CP. In addition to protecting against unlawful control violations, trusts 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,” the company said.
   The declaratory order does not fall within established STB procedures for seeking trust approval because it presents a hypothetical proposed trust. But CP said it is “hopeful that the STB will be able to offer clear guidance that will satisfy shareholders’ concerns before their voices are heard on CP’s pending resolution.”
    The Calgary-based railway added that it “urges NS, consistent with its duties to its shareholders, to assist constructively in this effort, but intends to proceed regardless of NS’s cooperation.”
   “While we remain fully confident in our comprehensive regulatory plan, shareholders of both CP and NS have recommended 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,” said CP CEO E. Hunter Harrison. “We still think this action is unnecessary, however, we believe listening to the shareholders – the owners of our respective companies – is important.”
   CP earlier this month submitted a non-binding resolution urging NS shareholders to ask the company’s board of directors to engage in negotiations with CP and “discuss the clear benefits of a business combination that would create a true end-to-end transcontinental railroad that would enhance competition, benefit the public and drive economic growth.” Harrison, however, told the BB&T Corp. Transportation Services Conference last week the company would likely abandon its takeover bid if shareholders did not vote in favor of the resolution.
   “NS has cited supposed regulatory uncertainty regarding the voting trust model as a reason not to talk to CP, and NS proposed that we seek a declaratory order. We are skeptical that the STB will give a definitive ruling, especially when NS will not even sit down with us, but we are willing to go the extra mile if that is what it takes to get NS to the table,” said Harrison.
   Meanwhile, CP last week launched a new website, CPconsolidation.com, touting the supposed benefits of a merger between itself and Norfolk Southern. The website has little in the way of new information, however, and serves primarily as a compendium of previous press releases and white papers in favor of a CP-NS combination.
   CP has repeatedly argued the proposed acquisition would enhance competition, increase service levels for its customers and drive economic growth. But NS has since last November rejected three separate $30 billion stock-and-cash offers from CP, deeming them “grossly inadequate” and unlikely to win regulatory approval from the STB.