Washington District of Columbia USA - A major shipper group plans to challenge the waiver that would permit CP's proposed acquisition of KCS to be reviewed under the Surface Transportation Board's (STB) old, less restrictive, merger rules.
 
The National Industrial Transportation League (NITL) said today that the CP/KCS deal would ultimately harm rail competition.
 
"Based on the significant loss of rail competition as a result of prior mergers between Class I railroads, the NITL has concerns with the waiver, which would require the STB to apply its merger rules pre-dating 2001. NITL intends to object to application of the waiver to this transaction in comments to be submitted to the STB next week," NITL Executive Director Jennifer Hedrick says.
 
Major service disruptions after the wave of mergers in the 1990s soured shippers on additional consolidation in the rail industry.
 
Those mergers, including Union Pacific-Southern Pacific, Burlington Northern-Santa Fe, and the split of Conrail between CSX Transportation and Norfolk Southern, prompted the STB in 2001 to impose much tougher merger review rules.
 
The new rules have stymied further consolidation in the industry because they require any deal to be pro-competitive and consider so-called "downstream effects" such as a wave of final consolidation that would lead to just two transcontinental systems.
 
KCS sought and received a waiver from those rules, but the waiver is not ironclad.
 
The STB said in 2001 that old merger rules would apply to a KCS combination with another Class I railroad "unless we are shown why such a waiver should not be allowed. Interested parties must file any objections to this waiver within 10 days after the applicants' pre-filing notification."
 
That would give Class I railroads or other interested parties until 1 Apr 2021 to file a challenge.
 
"The waiver applies and should apply. We will review their filing and respond accordingly," CP spokesman Jeremy Berry says.
 
Analysts expect the STB will approve the CP/KCS merger either way.
 
And CP CEO Keith Creel said on Sunday that because the deal is pro-competitive it would sail through even the more stringent review process.
 
A CP/KCS merger would, for example, give shippers a third single-line option for shipments moving between Texas and the Mexican border, and Chicago and the Upper Midwest, providing competition for service that BNSF Railway and Union Pacific already provide.
 
"I would have expected NITL to oppose because that's what they do," says independent analyst Anthony B. Hatch.
 
Because the deal is a classic end-to-end merger, Hatch doesn't see arguments shippers could successfully make about a CP/KCS combination harming railroad competition.
 
And he expects the deal to ultimately be approved by federal regulators.
 
Rick Paterson, a railroader turned analyst at Loop Capital, wrote in a note to clients earlier this week that there was a better than 90 percent chance that the STB would approve the CP/KCS deal under the old rules.
 
But he said the odds drop to a 65 percent chance the board would approve it under the 2001 rules.
 
Bill Stephens.