Montreal Quebec - CN today announced that its proposal to combine with Kansas City Southern (KCS) in a cash-and-stock transaction valued at US$33.7 billion continues to receive overwhelming support from customers, suppliers, elected officials, and other stakeholders because of its extensive pro-competitive benefits. CN has received more than 200 additional letters in favor of CN's proposed combination with KCS with the Surface Transportation Board (STB). This brings the total number of support letters CN has received to more than 600 in just over a week since its proposal was made public, far exceeding the number of letters that Canadian Pacific Railway Limited (CP) has received in over five weeks. "CN's customers and other stakeholders recognize that our proposal to combine with KCS will enhance competition and we are grateful for, but not in the least surprised by, their overwhelming enthusiasm to see this combination brought to life. Together, CN and KCS will create a robust network that enhances routing choices and price competition for customers by introducing new access and interchange options. We will create valuable new express services that do not exist now. Many customers will get new and better transportation choices, and importantly, no customers will be left without multiple transportation choices. We look forward to continuing our discussions with the KCS board so that we can create the premier railway for the 21st century and immediately begin delivering the many pro-competitive benefits of this transaction."
 
JJ Ruest - president and chief executive officer of CN.
 
Combination of CN and KCS will Enhance Competition and Drive Economic Growth
 
Together, CN and KCS would be the fifth largest railroad by track miles in the United States, the same relative size as a combined KCS and CP.
 
The combination will fundamentally enhance competition by creating a true USMCA railroad that establishes a seamless single-line service to expand North American trade and power economic prosperity.
 
More network access benefits customers.
 
The combination will provide each railroad's customers with more network access, including an additional 22 Class 1 gateways, 5 ports, and 10 barge terminals for KCS customers.
 
More options and greater choice will allow customers to pivot to new opportunities, develop new markets, and optimize their freight return on investment.
 
Multiple new North-South routing options will also introduce unmatched network resiliency in all seasonal and adverse weather conditions, from Texas to the Midwest to Canada.
 
Compelling benefits for ports and terminal owners.
 
CN customers will gain seamless access to 11 new bulk and intermodal international ports, while KCS customers will gain access to 5 new international intermodal ports, driving growth in international trade from all coasts of the continent.
 
Many ports in CN's current network support the proposed combination with KCS based on CN's long and successful track record of partnering with ports, including investing in their infrastructure and participating in joint projects that increase traffic, support port customers, and facilitate international trade.
 
The Alabama State Port Authority, which has authority over the Port of Mobile, states that the merger would enhance "end to end single owner, single-operator service resulting in a faster, safer, and more economical rail option for our shippers, while retaining the port's competitive posture in the markets we serve."
 
As the Port of New Orleans and its Public Belt Railroad summarized, "this merger offers a unique opportunity to fuel economic growth across North America while reducing freight congestion, helping the environment, and increasing transportation efficiencies."
 
Highly complementary networks with minimal overlap.
 
There will be less than 65 out of 7,100 miles of overlap, less than 1 percent, between CN's and KCS' respective networks.
 
The CN North-South routes and the KCS North-South routes are hundreds of miles apart and there are numerous competitive rail, trucking, and barge routes serving customers in between.
 
CN and KCS routes service unique markets and CN will retain all existing route choices.
 
In addition, CN is committed to providing bottleneck protections and keeping all gateways open.
 
Any minimal post-transaction overlap can be easily resolved and CN is committed to proposing appropriate remedies.
 
CN has a track record of successful mergers, integrations, and resolution of competition issues that demonstrates its ability to make pro-competitive agreements as part of merger transactions under review by the STB, with the acquisition of Illinois Central in 1998 being a prime example.
 
Notably, CN has voluntarily agreed to have its transaction with KCS reviewed by the STB under its current rules, evidencing its commitment to demonstrate the pro-competitive nature of the transaction and to address any competition concerns.
 
Economic benefits for local communities.
 
CN is committed to making significant infrastructure investments in key communities across the new network, including Illinois, Missouri, Michigan, Louisiana, and Texas, meaning more economic opportunity and more jobs.
 
Clear Path to STB Approval of Voting Trust and Closing of Transaction
 
There has been an attempt by CP to distract from the obvious fact that its proposal is weaker, both in terms of value to KCS shareholders, and the benefits it will deliver to customers, employees, and other relevant stakeholders.
 
However, the facts remain clear.
 
The railroad regulatory approval condition that is relevant to KCS shareholders is approval of the voting trust.
 
CN is proposing to use the identical voting trust, including the same exact trustee, that CP has proposed, and is confident the STB will approve both trusts and place them on a level playing field so that KCS shareholders can realize the fair value of their investment.
 
Because CN strongly believes that its proposed combination is clearly in the public interest, it has welcomed review under the STB's new merger rules.
 
CN is confident there is no basis to treat CP and CN's voting trust applications differently and the current rules and old rules are irrelevant in that decision.
 
STB Filing Outlining Specific Cases of CP Misleading Claims and Why its Request for Preferential Treatment Should be Denied
 
Today, CN filed with the STB a letter outlining the reasons why CP's attempt to disrupt the STB approval process for CN's voting trust are inappropriate and not based in sound legal principles.
 
CN's letter to the STB also highlights numerous misleading claims from CP and details why CP's request for preferential treatment around its voting trust should be denied.
 
A full copy of that letter appears below:
 
29 Apr 2021
 
The Honorable Cynthia T. Brown
Chief, Section of Administration, Office of Proceedings
Surface Transportation Board
395 E Street S.W.
Washington, DC 20423
 
Re: Finance Docket No. 36500, Canadian Pacific Railway, Ltd., et al.-Control-Kansas City Southern, et al.
 
Finance Docket No. 36514, Canadian National Railway Company et al.-Control-Kansas City Southern, et al.
 
Dear Ms. Brown,
 
On 27 Apr 2021 Canadian Pacific Railway Limited (CP) filed a letter in the above-referenced dockets asking the Board to adopt different review processes and standards for two identical voting trust agreements.
 
CP claims unequal treatment is appropriate because Canadian National Railway Company (CN) has voluntarily committed to submit its application under the current merger rules.
 
CP also advances a number of baseless accusations about supposed lost competition for customers in a combination of CN and Kansas City Southern (KCS).
 
Neither argument justifies this overt effort to have the Board put its thumb on the scales of the competing offers made by CP and CN for the acquisition of KCS.
 
Instead, the Board should adopt a single, efficient, fair, prompt, and uniform review process for the two identical voting trust agreements before it.
 
Following public feedback, CN is confident the STB will agree with us that permitting either party to close into these plain-vanilla voting trusts in this fiercely competitive auction setting is the proper decision in the public interest.
 
CP's self-serving effort to secure preferential treatment should fail.
 
First, CP's presumption that its voting trust is now excused from "any further review process" ignores what the Board said in its 23 Apr 2021 decision: "the review process for the Voting Trust Agreement will be addressed in a subsequent decision."
 
The Board was clear, there will be a review and there will be a proper process.
 
CP implies that, because its KCS acquisition proposal is not subject to the new merger rules, the Board does not have the authority or discretion to seek public comment on and review CP's proposed voting trust arrangement.
 
But the Board has been clear that "our authority to rule on, or prevent the use of, a voting trust, is inherent in our statutory authority over rail mergers."
 
Major Rail Consolidation Procedures, 5 S.T.B. 539, 567 (2001).
 
And the agency had exercised that authority in connection with proposed Class I railroad mergers in the years before the current merger rules were adopted.
 
For example, in Union Pacific Corporation, et al.-Request for Informal Opinion-Voting Trust Agreement, Docket No. FD 32619 (20 Dec 1994), the full ICC reviewed and approved the voting trust at issue, ordered a modification to the proposed voting trust agreement, and noted that it would retain continuing jurisdiction to correct any future problems with the trust and even dissolve it.
 
The agency thus has a history of engaging in the same type of public interest analysis for particular Class I mergers that was later codified for all proposed Class I mergers in the new merger rules.
 
There is no reason why CP's proposed voting trust cannot, and should not, be reviewed by the Board in the same manner, regardless of whether the current merger rules or the old merger rules apply to a CP/KCS combination.
 
Any other conclusion would mean a party could close a transaction even if the Board believed the proposed voting trust was not in the public interest.
 
To be sure, the public interest inquiry for a voting trust is different from the standard for final approval.
 
As the Board said in Major Rail Consolidation Procedures, the central public interest consideration in review of a voting trust is potential harm to the applicants from a sale out of trust.
 
That risk of harm is not present here, where there is significant interest in the KCS franchise from two railroads and private equity firms.
 
And it is plainly in the public interest to place railroads on even ground with potential financial acquirers and to reduce the longer regulatory review process for the benefit of KCS and its shareholders while allowing the Board the opportunity to consider the merits of a proposed combination of either CN/KCS or CP/KCS.
 
CN has explained why its use of a voting trust agreement would be in the public interest, and CP can and should be required to do the same.
 
Second, CP asserts that the Board should adopt different review processes because "different factual contexts demand different treatment."
 
Yet the factual contexts of the voting trust agreements are the same.
 
The voting trust agreement that CN has proposed to use if KCS partners with CN is exactly the same in every respect as the voting trust agreement that CP negotiated with KCS, including using the very same trustee.
 
CP's suggestion that voting trust review should depend upon whether the transaction might ultimately be approved is meritless.
 
Voting trust review has nothing at all to do with the conditions the Board may impose in its ultimate transaction review or whether the Board would approve the transaction.
 
Nor could it.
 
Neither CN nor CP has submitted an application for approval of a transaction, let alone one that has received public comment and been analyzed by the Board.
 
The Board cannot prejudge the merits of either a CP/KCS or a CN/KCS transaction in its review of the identical voting trusts.
 
Yet that is exactly what CP is trying to get the Board to do.
 
Third, certainly the Board cannot tilt the playing field on the basis of accusations of lost competition that are unsubstantiated, unsupported, and contrary to an outpouring of stakeholder support.
 
The CN/KCS combination is an end-to-end transaction with limited overlap, amounting to approximately 1 percent of their total network, and a very limited number of customers that are served only by CN and KCS (so called 2-to-1 customers).
 
CP apparently used the confidential Carload Waybill Sample that the Board authorized for use in preparing its application in FD 36500 to prepare two maps criticizing the potential CN/KCS combination proposed in this docket.
 
These maps are not supported by expert testimony, any analysis, or supporting workpapers that could allow CN or the Board to analyze fully CP's assertions.
 
But CN does not need to see the backup to know that CP is either seriously misunderstanding or deliberately misstating the facts.
 
Headline suggestions of "over 340 shippers" harmed are a massive overstatement.
 
For example, CP claims to have located 152 of these shipper facilities in the St. Louis/Springfield area.
 
But there are no 2-1 CN/KCS facilities in St. Louis.
 
What CP appears to be referencing is the significant number of St. Louis-area customers who are served by the Terminal Railroad Association of St. Louis (TRRA), a switching railroad with connections to six Class I railroads, BNSF, CN, CSX, KCS, NS, and UP.
 
All of CN's traffic to St. Louis is handled through the TRRA.
 
Suggesting that a TRRA-served customer could suffer meaningful competitive harm by having access to five Class I railroads rather than six is nonsense.
 
Moreover, even if a particular TRRA-served facility currently ships via both CN and KCS, that would not mean that CN and KCS could both serve the same flows of traffic to or from that facility.
 
CN reaches these points from the east, and KCS reaches them from the west.
 
The same could be said for alleged overlaps in Omaha/Council Bluffs, which CN and KCS reach via different directions.
 
To say that customers in these locations face competitive harm is as nonsensical as saying that Kansas City area customers would lose competition from a CP/KSC merger because they formerly could ship northbound via CP or southbound via KCS.
 
Indeed, customers from many areas, including those that CP claims might suffer competitive harm, have already come out to support a CN/KCS transaction.
 
CN acknowledges that a small number of customers between Baton Rouge and New Orleans currently have the ability to be served by CN and KCS, and CN has committed to proposing a competitive solution for those customers.
 
This solution will be informed by CN's ongoing discussions with those customers.
 
Even if CN could not reach agreement with those customers, CN commits to propose an appropriate remedy to address 2-to-1 customers, including haulage, trackage rights, or even divestiture.
 
At the heart of CP's allegations, however, are false claims that customers from Canada to Mexico will suffer serious harm from lost routing options.
 
In Figure 2, CP claims to show a loss of "rail choice" because CN's north-south line between Chicago and New Orleans is roughly parallel to the KCS north-south line between Kansas City and Houston.
 
CP ignores both the hundreds of miles between these two routes and the fact that those lines run parallel to multiple other north-south transportation corridors.
 
These include rail routes from four other Class I carriers (several of whom have multiple north-south routes in Mid-America), water routes on the Mississippi, and truck routes on interstates like I-35 and I-55.
 
The map on the next page illustrates the wealth of routing options available.
 
Moreover, CP ignores CN's public commitment to keep all existing gateways open on commercially reasonable terms.
 
The value proposition of a CN/KCS combination is about growing trade, competing better with trucks, and increasing customer choice, not about limiting competitive options.
 
The very fact that hundreds of customers immediately expressed strong support for the CN/KCS combination is powerful evidence of the potential public benefits of this combination.
 
KCS and its shareholders deserve an opportunity to consider CN's superior proposal, and if KCS chooses to partner with CN, KCS and CN deserve the opportunity to demonstrate the public interest of a CN/KCS combination on the merits.
 
CP knows all of this yet continues to make these assertions that are exaggerated, mischaracterized, and not representative of the full story.
 
And the reason it is doing so is clear.
 
CP knows that the CN/KCS transaction is better for customers, employees, communities, and the North American economy as a whole.
 
It knows that it cannot compete with the CN/KCS transaction from a value standpoint, and it cannot compete with the CN/KCS transaction from a pro-competitive standpoint.
 
CN voluntarily committed to meeting the enhanced competition standard of the new rules.
 
That means a commitment to address any facilities served only by CN and KCS, as CN has committed to do.
 
It means a commitment to keep gateways open on commercially reasonable terms, as CN has committed to do.
 
It also means a commitment to propose solutions to customers to address any other demonstrated competition concerns.
 
And if agreement is not achieved with such customers, it means a commitment to implementing appropriate conditions from the Board to enhance competition, using the current merger rules.
 
CP is engaged in a completely transparent attempt to have the Board adopt one standard of review for its voting trust because its transaction with KCS would be reviewed under the old rules, and a different standard of review for CN's voting trust because CN voluntarily agreed to have its transaction with KCS reviewed under the new rules.
 
In fact, the Board should feel comfortable approving the CN voting trust because of the foregoing commitments that CN has made that will ensure the pro-competitive aspects of the CN/KCS transaction.
 
The Board has a well-earned reputation as a neutral arbiter.
 
There is no plausible harm to CP from the Board examining the identical voting trusts under the same standards and schedule, and ruling on both by 31 May 2021.
 
Approving both voting trusts would offer KCS and its shareholders the ability to make an informed choice between the two potential transactions on a level playing field.
 
And approval would make possible the massive benefits that will flow from better service, more shipping options, and streamlined service from Mexico, to the United States, to Canada.
 
Sincerely,
 
Raymond A. Atkins - Ph.D.
 
cc: Parties of Record in FD 36500; Parties of Record in FD 36514