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CP Rail facing little opposition so far to deal for U.S. railway as it shows support

·3 min read

TORONTO — Canadian Pacific Railway is facing scant opposition so far over its US$25-billion bid for Kansas City Southern in a turn of events from prior takeover efforts.

Wasatch Railroad Contractors, a rail-oriented business in Wyoming, made the initial filing with the U.S. Surface Transportation Board arguing against the deal.

Chairman and CEO John Rimmasch wrote that the merger would allow a Canadian-based railroad a dominating monopoly in the United States and create the only rail system with direct ownership of track and trackage rights to Canada, the U.S. and Mexico.

"This merger goes against everything that maintains a good and strong economy in the United States of America and places Canada and Mexico in a stronger position to dominate what should be United States transportation matters," said the filing from last week.

Global food corporation Cargill Inc. urged the regulator to apply current merger rules when evaluating the proposal, saying the industry has changed significantly since 2001 when Kansas City was granted a waiver.

"While these two carriers state that they are the smallest of the Class I’s, they are still Class I carriers and each exert market power over their shippers," stated vice-president Brad Hildebrand.

"Cargill believes that any merger of these two should rise to the highest level of scrutiny as provided by the board to properly evaluate the long-term impact on competition in the marketplace."

The American Chemistry Council, National Grain and Feed and the National Industrial Transportation League made a similar submission about the waiver.

"Whatever logic did exist for the KCS waiver 20 years ago has been eroded by the significant increase in the size of KCS and the significant changes in the rail marketplace since then," it wrote.

The groups said the transaction will have significant impacts on competition and rail service that current merger rules are designed to address, including the preservation of gateways and changeable bottleneck rates.

Norfolk Southern Railway Co. also called on the regulator to apply current merger guidelines but said it was not taking any position on the merits of the proposal.

"Winding back the clock to antiquated guidelines would deny the agency the suite of modern tools to gauge and address the broad implications of any major rail merger in the current economic and operational environment," it wrote, adding that current guidelines require applicants to submit plans in case of service disruptions.

"As the board knows, service disruptions are not confined to the applicants and would ripple throughout the nation’s freight rail network."

The International Association of Machinists and Aerospace Workers and Transportation Communications Union say they plan to participate in the proceedings but haven't taken a position on the deal.

Meanwhile, Calgary-based CP Rail demonstrated support for its takeover bid by filing nearly 260 statements from shippers and supporters, including those seeking a swift review of the transaction.

"The CP-KCS combination is expected to provide an enhanced competitive alternative to existing rail service providers and is expected to result in improved service to customers of all sizes," the proponents said in a news release.

CP Rail says the filing of support was "a collaborative process" with Kansas City because of similar benefits across shippers and industries.

In 2014, CP Rail abandoned a push to acquire CSX Corp. in the face of opposition. It dropped a bid for Norfolk Southern two years later.

This report by The Canadian Press was first published April 1, 2021.

Companies in this story: (TSX:CP)

Ross Marowits, The Canadian Press