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Former rail regulator recommends approval of CN-KCS voting trust

Clyburn: Question whether proposed acquisition meets public interest test shouldn’t be used to screen request to form voting trust

A CN train heads to its next destination. (Photo: CN)

Former Surface Transportation Board (STB) Vice Chairman William Clyburn Jr. is urging the current board to approve the proposed voting trust that Canadian railway CN (NYSE: CNI) plans to form as part of the process to acquire Kansas City Southern (NYSE: KSU).

CN and Kansas City Southern (KCS) say the voting trust will protect KCS from being taken over during merger proceedings before the board. 

Since STB will review the proposed merger under newer, post-2001 rules pertaining to Class I rail mergers, the board must figure out how to apply those newer rules when reviewing the proposed voting trust. 

Clyburn, who sat on the board when it voted on the new merger rules in 2001, said the intent of the new rules wasn’t to create a “new test” to prejudge the “public interest” merits of an entire proposed transaction before approving a voting trust.

Rather, the two factors that the board at the time considered were whether the voting trust  would “insulate the target company from unlawful control by the acquiring company during the regulatory review process” and whether “the acquiring company and target company [would] remain financially sound so as to not jeopardize either railroad in the event the transaction was eventually denied,” Clyburn said. 

“The new rules were designed to require applicants to formally meet these tests before the board would approve the use of a voting trust,” Clyburn said.

He continued, “The proposed CN/KCS trust should be approved. It incorporates the same elements that have already been approved for the now moot CP/KCS voting trust and proposes to use the same trustee. In approving the CP/KCS trust, the board has already determined that the trust structure does not cause unlawful, premature control. The board should reach the same conclusion with respect to the CN/KCS trust.”

Clyburn’s full op-ed is available on Railway Age, according to a CN release. Clyburn served on STB from 1998 to 2001.

The op-ed comes as STB announced on Wednesday the schedule for its review of CN’s voting trust.

Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.