U.S. Assistant Attorney General echoes concerns over CP voting trust

Responding to a Senate antitrust subcommittee, the Justice Department’s top antitrust official said the proposed voting trust is “an area of concern” as it could allow Canadian Pacific to make changes at Norfolk Southern prior to regulatory review.    The United States Department of Justice’s top antitrust official earlier this week responded to concerns voiced by a the leaders of a Senate subcommittee for antitrust matters regarding a voting trust proposed by Canadian Pacific Railway as part of its continued attempts to acquire Norfolk Southern Corp.
   Sens. Mike Lee, R-Utah, and Amy Klobuchar, D-Minn., the top members of the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, wrote a letter to the U.S. attorney general’s office warning that CP’s voting trust plan could limit the ability of the U.S. Surface Transportation Board (STB) to protect competition.
   Speaking before the Senate subcommittee, Assistant Attorney General for the Antitrust Division Bill Baer said the proposed voting trust is “an area of concern” because it could allow CP to make changes at NS prior to a federal regulatory review of the merger.
   Under the voting trust plan, CP CEO E. Hunter Harrison would sell his shares in the company and become chief executive of NS, while current CP Chief Operating Officer Keith Creel takes over for Harrison at CP.
   “That strikes me as letting the fox into the chicken coop subject to an investigation later of why there are so many feathers lying around,” said Baer, adding that his department would alert the STB of its concerns.
   A spokesman for CP reportedly told the Wall Street Journal the temporary voting-trust structure, which has been used in previous mergers, is designed “to ensure the independence” of both companies during regulatory review process, which can take up to two years.
   “CP is confident that the Surface Transportation Board will perform its role—as mandated by congress—to ensure that any proposed rail merger is in the public interest and enhances competition,” the spokesman said.
   The bigger problem for CP is that NS has thus far rejected all three of its stock-and-cash bids, valued at around $30 billion, and has shown no signs it is interested in negotiating a merger.
   CP said yesterday it has officially filed a preliminary proxy statement with the U.S. Securities and Exchange Commission outlining a resolution that asks NS shareholders to force the board of directors to engage in negotiations with the Calgary-based railroad.
   CP has repeatedly argued its proposed takeover of NS would enhance competition, increase service levels for its customers and drive economic growth, but the deal has been met with strong opposition from fellow Class I railways CSX Corp., Union Pacific Corp. and BNSF Railway, other members of Congress, rail unions, NS customers, FedEx and UPS, who have said a merger would cause further consolidation in the industry that would lead to a decrease in competition and service levels.