I guess this means that both CP and KCS are fallen flags now.Justin Franz @ Railfan & Railroad wrote: LIVE UPDATES: Regulators Approve CP-KCS Merger
-The U.S. Surface Transportation Board announced Wednesday it would allow Canadian Pacific to acquire Kansas City Southern.
-STB rejects Canadian Nationl’s request that it get KCS lines from Springfield, Ill. to Kansas City as a condition of the merger.
-STB establishes an “unprecedented” seven-year oversight period over CPKC, requiring regular updates to the board on operations, traffic and other key metrics.
By Justin Franz
UPDATED: 12 EST p.m., March 15
WASHINGTON — The U.S. Surface Transportation Board announced on March 15 that it would approve Canadian Pacific’s acquisition of Kansas City Southern resulting in the largest railroad consolidation in a generation and the first since the merger mania of the 1990s.
The combined railroad is expected to be called Canadian Pacific Kansas City and the two railroads will officially be able to merge on or after April 14.
“We made this decision because on the balance the merger of these two railroads will have a positive impact on the American economy and improve, for all citizens, safety and the environment,” said Chairman Martin Oberman during a press conference shortly after the decision was released.
The merger of North America’s two smallest Class I railroads will result in the biggest shift in railroading since Conrail was split between CSX Transportation and Norfolk Southern in 1999. It will also likely be the last merger ever between two major railroads — at least as long as the STB maintains its stance that any more consolidation would be bad for competition — and will permanently freeze the Class I landscape with six major carriers. CPKC will oversee 19,200 miles of track connecting the U.S., Canada and Mexico, the first railroad to touch all three countries. CP CEO Keith Creel will be the leader of the combined company that will be headquartered in Calgary.
A map of the combined Canadian Pacific and Kansas City Southern systems.
The ruling came about a week shy of the second anniversary of CP and KCS announcing their intentions to merge on March 21, 2021. While other mergers had been proposed since the STB put out new consolidation rules in 2001 — most notably CP and CSX Transportation in 2014, and CP and Norfolk Southern in 2016 — observers instantly concluded that this was the most likely to succeed. However, it almost didn’t happen. A month after CP and KCS revealed their plans, Canadian National announced it was interested in acquiring KCS. CN offered more money and KCS quickly took the offer, setting off a frenzied battle between the two Canadian carriers. But then a bombshell: The STB announced in September 2021, it would not let CN put KCS into a blind trust, essentially derailing that consolidation. The STB also hinted that it would never approve another merger beyond that of CP and KCS. KCS went crawling back CP and within days the original merger was back on — pending federal approval. Since then, the two railroads have been subjected to a rigorous review by the STB one which finally came to a conclusion on March 15.
After it was clear that CN was not going to be able to merge with KCS, the former began asking for concessions, including that CPKC sell the Springfield, Ill., to Kansas City and East St. Louis route to it. The STB decided on March 15 that it would not make that a condition of the merger, noting that its job was to “protect competition and not competitors.”
The STB noted that even merged into one, CPKC would be the smallest of North America’s Class I railroads and that it would be a true “end-to-end” merger, meaning rail shippers were likely to benefit from additional reach. However, to ensure that shippers, rail passengers and other stakeholders are not negatively impacted, the STB was implementing an “unprecedented” seven-year oversight period over the merged railroad. That meant CPKC would have to give regular updates to the board on its operations and prove that critical interchange gateways remained open.
Amtrak was an early supporter of the merger after forging an agreement with CP and KCS to expand passenger service on certain routes, including between New Orleans and Baton Rouge, La., and between Meridian, Miss., and Dallas. The STB applauded those agreements and vowed to ensure that CPKC followed through on the promise.
One passenger railroad that did not support the merger was Chicago’s Metra, which worried that increased freight traffic as a result of the deal would negativity impact its passenger trains. The STB considered that, but ultimately decided that the eight extra freight trains in the Chicago area resulting from a combined CP-KCS would not be a major issue in an area that already hosts 1,300 trains per day.
The board’s vote on the merger was not unanimous, however, with member Robert Primus voting against it. In the overall decision, the board noted that not everyone would agree with having another merger.
“The Board recognizes that some in the shipping community and among antitrust commentators are not satisfied with the consolidation among Class I railroads that occurred following the Staggers Rail Act of 1980, and the Board itself has done its best to address how the Class I railroads behave today,” the decision reads. “Indeed, there is an ongoing debate about whether there has already been too much consolidation in the rail industry. Regardless of which side one takes in that debate, the Board is charged by Congress with reviewing the proposed merger in light of the state of the industry as it actually exists.”
CP and KCS officials were exuberant about the board’s decision. Shortly after the decision was published, CP issued a press release stating that it was reviewing the STB’s decision and would be putting out more information in the coming days about how the two railroads would be merged. CP has held KCS in a blind trust since 2021.
“This decision clearly recognizes the many benefits of this historic combination,” said CP CEO Keith Creel. “As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network, and drive economic growth.
“This important milestone is the catalyst for realizing the benefits of a North American railroad for all of our stakeholders,” said Patrick J. Ottensmeyer, KCS President and Chief Executive Officer. “The KCS Board of Directors and management team are very proud of the many contributions and achievements of the people who have made KCS what it is today and we are excited for the boundless possibilities as we move forward into the next chapter as CPKC.”
During a press conference, the issue of safety was raised a number of times, especially as the fallout from NS’ explosive wreck in Ohio continues. Oberman said safety was a major consideration, but that he believed it would be increased with a combined CP-KCS. He also noted that shipping hazardous materials via rail is much safer than by truck.
Following that derailment last month, a number of elected leaders asked the STB to pause its decision on the merger and look at the data further. But Oberman said there was no way the board could study the merger more than it did.
“I’m confident that this data cannot be studied any further,” he said. “If we studied it further, our eyes would fall out.
This is a developing story. It will be updated as more information becomes available.
This article was posted on: March 15, 2023
(Note, full updated article is available at the link at the top of the post.)
