The chair of the U.S. House Committee on Transportation and Infrastructure has come out against a proposed voting trust that Canadian railway CN (NYSE: CNI) would use to acquire Kansas City Southern (NYSE:KSU).
The objection comes as other House members have expressed support for merger proceedings between the Class I railroads to continue.
The Monday letter from Rep. Peter DeFazio, D-Ore., calls for the Surface Transportation Board (STB) to reject CN’s proposed voting trust, arguing it is not in the public interest since it “would reduce competition and prejudice the outcome” of STB’s proceeding on the merger.
CN and KCS have said they need the board to approve the voting trust, which is being formed as part of the process to acquire KCS. The voting trust protects KCS from being taken over as the merger moves forward, they have said.
DeFazio cited a May 14 letter from the antitrust division of the U.S. Department of Transportation, in which the division argued that putting two formerly competitive businesses under a single holding company discourages competition between both companies as merger proceedings take place.
He pointed out that CN’s and KCS’ networks overlap, affecting 300 customers. This overlap would change the rail traffic patterns as the merger proceedings unfold, DeFazio said.
CN and KCS have said they would address this overlap, located along a 70-mile stretch in Louisiana, by divesting track.
“This combination of Class I railroads serving [the United States, Canada and Mexico] will exacerbate U.S. job losses from cross-border trade agreements that prioritize profits over people and inflict harm on workers’ rights, consumer safety and the environment,” DeFazio said.
“I trust that the Surface Transportation Board will look at the specific facts of this action and conclude that approving a trust is too much, too soon. Too much authority in one company to somehow keep two companies competing against each other that have significant service overlap and too soon because allowing the trust creates a new floor purchase price for any other potential competitive bidders for KCS railroad,” he continued.
DeFazio previously voiced skepticism about mergers among major freight rail carriers, saying in April that recent proposed mergers “should set off alarm bells about a potential new wave of railroad mergers that stifle competition and trigger industrywide consolidation.”
Other congressional representatives view the trust differently, according to correspondence that STB has received over the past month. Fellow U.S. House T&I Committee member Bob Gibbs, R-Ohio, asked STB in a June 30 letter to approve the voting trust “in a timely manner” so that the merger proceeding between CN and KCS can continue.
Reps. Tim Ryan, D-Ohio, and Peter Meijer, R-Michigan, also sent letters recently to the board in support of the voting trust.
“This approval would allow the Canadian National proposal to be reviewed in accordance with the Board’s previously approved trust arrangement for Canadian Pacific (CP). This would allow both the CN and CP proposals to be considered by the STB on a level playing field,” Ryan said. “I am hopeful the approval of both Voting Trusts will enable KCS to deliberate on the best possible bid. Therefore, I urge you and the Board to give CN’s Voting Trust proposal your full and fair consideration.”
Ryan is referring to CP’s plan to acquire KCS, announced in March. KCS opted in May to proceed with CN’s competing acquisition bid, although CP has said that it is keeping its proceeding open before the board in case the situation changes and KCS decides to merge with CP.
For full coverage of the CN/CP/KCS situation, click here.