WASHINGTON – The railroad duel of the 21st century continues.
In a letter to federal regulators, Canadian National today touted its “superior” bid for Kansas City Southern and sought to correct “misleading statements” that Canadian Pacific made this week about a potential CN-KCS merger.
Last month CP and KCS reached a friendly, $29 billion deal to merge their systems into the first railroad linking Canada, the U.S., and Mexico. On Tuesday CN submitted an unsolicited $33.7 bid, which the KCS board is considering.
CP says that a CN-KCS merger would be anti-competitive, would significantly reduce options for shippers, and choke off the friendly connection CP currently enjoys with KCS in Kansas City, Mo. CP also suggested if a CN-KCS merger were ultimately approved it would have to seek a merger partner from among the other Class I systems, a move that would set off a final round of industry consolidation.
CN disagreed on all counts.
“The CN proposal is a manifestly superior offer to KCS because the combined CN-KCS network can provide more public benefits by connecting the continent, promoting growth, and competing more aggressively with the trucking industry for long-haul movements,” CN told the U.S. Surface Transportation Board.
Shippers would benefit from broader single-line service options with a CN-KCS merger, CN argues, and the combined railroads’ route would be the shortest and fastest between Mexico, Chicago, and Eastern Canada, with the promise of diverting more trucks off the highway.
CN also said it would address any competitive concerns arising from overlap of the CN-KCS systems. CP grossly overstated the extent of CN-KCS overlap, CN says, adding that only a “handful” of customers are currently dual served by CN and KCS. “If KCS chooses to partner with CN, CN will propose effective solutions, working closely with these customers to ensure that no customer will become sole served as a result of the transaction,” CN says.
CN pledged to keep all KCS gateways open on “commercially reasonable terms,” including the CP-KCS interchange in Kansas City.
CN also sought to downplay concerns that CP would be forced to find another merger partner. “The Board should disregard CP’s suggestion that it would be compelled to pursue a merger with another Class I railroad if KCS chose to combine with CN,” CN says. “Over the past decade, it is CP that has made multiple attempts to merge with different Class I railroads. CP’s effort to acquire KCS is their latest such effort. If CP in the future finds a willing Class I partner, the current merger rules plainly would apply and provide the STB with the opportunity to ensure that any such transaction would be in the public interest.”
CN urged the board to apply the tougher 2001 merger review rules to any deal involving KCS. KCS, as the smallest Class I, was granted a waiver from those rules, and CP and KCS contend that their merger should be reviewed under the older, less onerous rules.
“A truly pro-competitive transaction that is supported by detailed plans to assure service and demonstrated public interest benefits can and should be approved under the current merger rules,” CN wrote.
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