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CP states its case for takeover of Norfolk Southern in white paper

THE Canadian Pacific Railway (CP) issued a white paper for public consumption arguing that its proposed takeover of the Norfolk Southern Railway (NS) as in the public interest as it would enhance competition.

Moreover, if regulators of the US Surface Transportation Board (STB) failed to approve the merger, CP's proposed voting trust to carry on business while awaiting approval would leave investors no worse off than they were before.

The proposed takeover would fuse the trans-Canada road with the NS, which has a US network covering lands east of the Mississippi.

The CP proposal has been rejected by NS management and number of Democrat and union officials have also opposed the takeover. But it has gained support among major corporate shippers.

CP's white paper argues that the regulatory STB is partly governed by the 1980 Staggers Rail Act that deregulated the "failing rail industry".

"In 2001, the STB issued new merger rules that clarified how the 'public interest' standard would be applied in Class I rail consolidation cases," the white paper said.

"The new rules place a greater emphasis on showing that a proposed transaction enhances competition and proactively ensures that the public benefits of the transaction will be realised while minimising the risk of any potential harm from transitional service problems," it said.

CP said it was confident that the take over can meet this standard and "its voting trust structure will be approved because a CP-NS combination will more than satisfy the STB's public interest standard by introducing features that will enhance competition through a number of shipper-friendly options".

It has been suggested that the voting trust scheme proposed would not meet STB standards and would take too long to implement.

But CP disagrees: "Of the 144 voting trusts that have been used since the Staggers Act of 1980, none have been rejected including some involving management swaps."

If the STB disapproves of the merger, CP is confident that "both their customers and shareholders will be in the same financial position they were when the trust was approved."

CP said it has carefully reviewed the new STB merger rules and standards, including those of the voting trust structure, and has a "thoughtful and comprehensive plan to address the regulatory process".

The white papers said that the proposed CP-NS merger would more than satisfy the public interest standard by offering enhanced pro-shipper options, including elimination of bottleneck pricing and modified terminal access.

"As to downstream mergers, while CP believes that further consolidation is inevitable and necessary to support future economic growth, a combined CP-NS would still be smaller than both UP and BNSF, and therefore creates no pressure on other carriers to merge to remain competitive," the paper said.

"Instead, CP-NS would be better able to compete intermodally and intramodally, which in turn increases balanced competition as a whole. Like the CP-NS proposal, approval of any future downstream merger must be determined on its own merits to be in the "public interest," it said.