Court ruling derails BNSF-CN merger

The prospect of a long delay leads the two railroads to abandon their plans to combine operations.

By -- Logistics Management, 8/1/2000

Citing last month's U.S. Court of Appeals decision that upheld a moratorium on their proposed rail merger and the delay's potential impact on profits, Burlington Northern Santa Fe Corp. and Canadian National Railway Co. have called off the $6.2 billion deal.

The court's ruling upheld a moratorium on rail mergers imposed in March by the Department of Transportation's Surface Transportation Board (STB). The moratorium, which is expected to last until at least June 2001, means the STB will not accept any rail-merger applications until that time.

The two rail companies had planned to create North American Railways Inc., a 50,000-mile rail system linking eight Canadian provinces with 33 Western and Central U.S. states. The merged entity would have been the largest railroad in North America.

In a joint statement released by BNSF and CN, the CEOs of both companies said they had called off the deal because "CN and BNSF are both shareholder-driven organizations, and we have concluded it is not in the interests of our shareholders to assume the risks involved in waiting up to two and a half years for a decision on our transaction by the regulator in the United States." BNSF spokesman Richard Russack declined to comment further, saying, "There's nothing more to say."

BNSF, headquartered in Fort Worth, Texas, operates one of the largest rail networks in North America, with 33,500 route miles of track covering 28 states and two Canadian provinces. Canadian National Railway Co., headquartered in Montreal, operates a network of approximately 17,000 miles spanning Canada and mid-America, to the Gulf of Mexico.

Mixed reaction

The decision by the U.S. Court of Appeals for the District of Columbia Circuit mollified shippers that had opposed the merger. Shippers had complained that other rail mergers-last year's takeover of Conrail by Norfolk Southern Corp. and CSX Corp., and the 1996 joining of Southern Pacific Rail Corp. and Union Pacific Corp.-had disrupted service and caused massive delays.

United Parcel Service, for one, had "reluctantly" supported the moratorium, according to spokesman Norman Black. Previous rail mergers had proved so disruptive to the company, which is the single largest rail customer in the United States, that UPS officials felt obliged to support the STB's stance, he says. Although the company took no official position on the proposed merger of BNSF and CN, Black says UPS is pleased with the Court of Appeals ruling.

CSX Corp., which operates CSX Transportation, the largest rail network in the eastern United States, also applauded the Court of Appeals decision upholding the moratorium, saying the STB had a "legitimate concern that the proposed BNSF/CN merger, or any other rail merger for that matter, was not in the public interest at this time."

But other shippers and shipper groups are not so pleased. Edward M. Emmett, president of the National Industrial Transportation League, calls the merger's derailment "disappointing" because "increased competition would be good for the railroad industry." He adds, "I'm not sure [BNSF and CN] had any choice" but to withdraw their merger proposal. "The only avenue left open to them was to appeal the court's decision," Emmett says. "I think they would have won, but an appeal would take as long as the moratorium would last. It would be a Pyrrhic victory, because they would end up angering the agency that would oversee their operations."