Washington District of Columbia USA - The U.S. military on Thursday raised concerns with a federal rail regulator over the voting trust Canadian Pacific Railway Ltd. (CP) has proposed as part of its takeover bid for Norfolk Southern Corporation (NS) and said the deal could adversely affect the country's national defence.
 
In a letter to the U.S. Surface Transportation Board (STB) dated 7 Apr 2016 the Department of Defence said CP's proposal to have its chief executive, Hunter Harrison, run NS as part of the voting trust "could prove to be untenable due to the appearance of common control" of the two railways.
 
CP, which is Canada's second-largest railway, disclosed a US$28 billion offer for NS in mid-November.
 
The Calgary-based company has said a merger would result in savings of more than $1.8 billion annually.
 
NS has rebuffed all advances from CP.
 
The letter comes as a response to a 2 Mar 2016 petition from CP to the STB seeking a "declaratory order" on its voting trust proposal.
 
The idea would be to place both railways in a trust, if they agreed to merge, pending a review by the STB.
 
Under the STB's merger rules, common control is not allowed.
 
The Department of Defence said putting Harrison, a septuagenarian railroading legend, at the helm of NS while a review was under way would put him in a position in which he "must make business decisions with potentially competing interests."
 
The Department said in the letter that "it is too early to determine" whether a merger would degrade national defence, but said "the potential certainly exists."
 
Under the rules for a voting trust for a major railway merger, there may be no collusion, joint decision-making, or any other form of common control prior to regulatory approval.
 
The two must continue to operate as separate entities until a merger gets the green light.
 
A spokesman for CP said the railway looks forward to "providing a fulsome response" at the proper time to the department's comments.
 
The U.S. military relies on rail networks to move defense-related cargo across the country, both during peace and times of war.
 
A number of major rail customers have recommended against any merger, citing concerns that CP's plans to cut costs at NS would gut the railway and harm service.
 
They include package delivery company United Parcel Service Inc., the single biggest customer of the major U.S. railways.
 
Some U.S. politicians have also spoken out against a merger.
 
Earlier this week, the chairman of the U.S. House Transportation and Infrastructure Committee said he did not believe a merger was in the interests of the U.S. freight transportation system.
 
Nick Carey.