Canadian Pacific Railway maintains a merger would enhance rail service and competition and relieve congestion for all carriers.JASON FRANSON/The Globe and Mail
Canadian Pacific Railway Ltd. has complained to the U.S. Department of Justice that rival railways are illegally conspiring to block its proposed $28-billion (U.S.) takeover of Norfolk Southern Corp.
CP alleges in a letter to the Department of Justice that efforts by other railways to halt the proposed merger are an "unlawful" attempt to prevent the formation of a new competitor.
Lance Fritz, Union Pacific Corp.'s chief executive officer, told Reuters last week rail mergers will be bad for the industry and its customers, and he has been sharing this view with other railways, lawmakers and the U.S. Surface Transportation Board.
"I think we're doing a fair job of helping them understand our perspective," Mr. Fritz said in published reports.
Michael Ward, CSX Corp.'s CEO, said last week he has met with other rail leaders, including Matt Rose, chairman of Warren Buffett's BNSF Railway. "To be honest, we've had one or two discussions, but we were all against mergers to begin with," he told Reuters.
Virginia-based Norfolk Southern Corp. itself is opposed to the takeover, and has rejected three offers since November. The company has said the offer is undervalued, and that the U.S. regulator is unlikely to approve any deal, which could spur a final round of consolidation in the North American rail industry.
CP maintains a merger would enhance rail service and competition and relieve congestion for all carriers – especially in the key Chicago hub. The highly complex merger would see CP put itself into a voting trust while the approval process – expected to take up to two years – takes place.
In its letter to attorneys-general in the Department of Justice's antitrust division, CP likened the companies' "collective communications strategy" to an anti-competitive "group boycott."
"The fact that these major railroads have joined to work so feverishly against CP's proposal speaks volumes about their concerns regarding the impact the transaction would have on their competitive position," said the letter, signed by a New York-based lawyer for CP.
"They are – with good reason – concerned that the proposed Norfolk Southern acquisition will lead to a more competitive industry: With the combined efficiencies, cost savings and the upgraded competitive advantages, the combined companies will be much better positioned to price competitively, improve service quality and create the type of competitive environment that CP's competitors are afraid of."
CSX and the Department of Justice declined to comment. "We have communicated with other railroads for the purpose of petitioning the government," said Union Pacific spokesman Aaron Hunt. "We oppose this merger and we are prepared to discuss our views with the government."
Norfolk Southern's big shareholders have remained silent on the takeover plan, which CP has said could become the subject of a proxy fight at Norfolk Southern's next annual meeting.
After it halted the union of Canadian National Railway Co. and Burlington Northern Santa Fe in 2000, the U.S. Surface Transportation Board (STB) in 2001 erected higher barriers to big railway mergers. The new rules, which have not been tested, require railways to show the parties the deal will enhance competition and service. "They also require applicants to address whether claimed benefits can be achieved by means other than a merger," STB chairman Daniel Elliott said in a response to a group of Virginia politicians who voiced opposition to the CP deal.
The STB has also posted letters from several industry groups expressing fears the merger would drive up freight rates and reduce service.
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Competitors on the merger
"I think mergers could actually be destructive of shareholder value." Michael Ward, CSX chief executive
"We don't think it makes sense for the industry." Rob Knight, Union Pacific CFO
"A single merger could actually increase congestion in Chicago if the merging parties used shared assets to preference their own traffic." Union Pacific in a memo to employees on Dec. 17
"We oppose rail industry mergers in the current environment and believe the regulatory hurdles for future consolidation would be significant." Aaron Hunt, Union Pacific spokesman
"Then you've got two railroads in the west that would be looking at, 'Should one of us jump in with the NS assets or should the other one jump in on the CSX assets?'" Matt Rose, BNSF Railway executive chairman
Eric Atkins