CN, Canadian Pacific nail down more support for merger campaigns

A photograph of a Kansas City Southern train.

Canadian railways CN (NYSE: CNI) and Canadian Pacific (NYSE: CP) continue to make their case before regulators and the broader public about why each is the better company to acquire Kansas City Southern (NYSE: KSU).

Regulators are accepting public comments on CN’s proposed voting trust, which CN and KCS say they need in order to continue merger proceedings before the Surface Transportation Board (STB). They argue the voting trust protects Kansas City Southern from being taken over as the board reviews the merger. STB is taking public comments on the voting trust through Monday.

KCS and CN had agreed to merge in May, resulting in KCS disentangling itself from earlier plans to merge with CP.

Former STB chief economist argues in favor of CN’s voting trust

WIlliam Huneke, former director of the Office of Economics and chief economist for the STB, argued that the board should approve the voting trust.

In an op-ed in Railway Age, Huneke noted that STB should consider CN’s offer to open gateways between Mexico, the U.S. and Canada because it encourages competition, among other reasons.

“I am surprised by the lack of attention to the open gateways commitment. This commitment ensures that shippers who today enjoy competitive joint line routings with either CN or KCS will continue to have those routings available to them in a post CN/KCS merger environment, even if a merged CN/KCS could handle the entire movement via a single-line routing,” Huneke said. “This means continued competition and we know that competition encourages lower rates, better service and innovation.”

He continued, “The commitment is not just about maintaining physical routings, but also about ensuring that the routings are commercially reasonable to the shipper. What is meant by ‘open on commercially reasonable terms’? This means all market participants, railroads and shippers will benefit: they will get a fair chance to compete. They will pay and receive remunerative rates and get efficient service. If a shipper is not happy with their service, they can switch to another carrier because they will still have a choice.”

Huneke serves as a consulting economist and has provided advice to the Class I railroads, including KCS.

CN vies for union support of CN-KCS merger

CN said Wednesday that its proposed merger with KCS has the backing of the International Brotherhood of Boilermakers (IBB). The railway describes IBB as “one of the oldest unions in the United States representing more than 50,000 skilled craftsmen and craftswomen and industrial workers throughout the United States and Canada.”

“The IBB has a direct interest in the proposed pro-competitive CN-KCS combination. … The combined company would be well-positioned to create new growth opportunities for customers, labor partners, employees and other stakeholders. CN is committed to working with KCS’ management team to create new jobs up and down the line,” CN said.

The railway also said it has received the support of three local union committees affiliated with the International Association of Sheet Metal, Air, Rail and Transportation Workers – Transportation Division (SMART-TD).

The national leadership of SMART-TD earlier expressed concerns about the proposed CN-KCS merger.

CN said the union committees are located in areas where there is a direct interest in a CN-KCS merger.

The letters, which will be submitted to STB, come from the general chairmen of SMART-TD General Committees of Adjustment 377, 433 and 987. CN says the committees collectively represent over 1,800 conductors on CN’s U.S. subsidiaries, including those with the Grand Trunk Western Railroad, the Illinois Central Railroad, the Chicago-Central & Pacific Railroad, and the Wisconsin Central.

Canadian Pacific lobbies for support

Meanwhile, CP said it intends to file comments before the public comment period ends next Monday on why it thinks the board shouldn’t approve CN’s voting trust.

“As previously announced, CP is continuing to pursue its application process to acquire KCS so that the pro-competitive CP-KCS combination can be reviewed by the STB and implemented without undue delay, in the event KCS’ agreement with CN is terminated or CN is otherwise unable to acquire control of KCS,” CP said.

The railway also said Monday that more than 80 additional stakeholders have filed statements before STB expressing reservations about the proposed CN-KCS merger. They include those who are concerned about lost shipping options between New Orleans and Baton Rouge, Louisiana, according to CP.

CN and KCS have said they plan to divest about 70 miles of track in Louisiana because of direct competition between the two railways.

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