STB signs off on CP-KCS merger application

Late yesterday, the Surface Transportation Board (STB)—an independent adjudicatory and economic-regulatory agency charged by Congress with resolving railroad rate and service disputes and reviewing proposed railroad mergers—announced it has “accepted for consideration” the application filed on October 29 by Canadian Pacific Railway (CP) and Kansas City Southern Railway (KCS) concerning their potential merger. 

The filing of this application followed the closing of the agreement reached in mid-September between KCS and CP, in which CP will acquire KCS for $31 billion, in a stock and cash transaction, which includes the assumption of $3.8 billion of outstanding KCS debt.

“The Board finds that the application is complete as it contains all information required by the Board’s regulations,” said the STB in a statement. “In today’s decision, following public comment, the Board adopts a procedural schedule that sets deadlines for comments, responsive applications, final briefs, and other filings.”

As for the next steps, STB officials said that notices of intent to participate are due by December 13, with subsequent deadlines included in its decision. And it added that the procedural schedule provides that any necessary public hearing will be take place after the filing of final briefs, which are due on July 1, 2022.

In late October, CP and KCS said that the control application provides:

• an overview of the proposed operational integration of the CP and KCS rail networks;
• the impact of that consolidation on the companies' finances and labor needs; and
• the anticipated competitive and other benefits that will flow from providing shippers with new and better transportation alternatives

They also added that information in the filing outlines the public and customer benefits a CP-KCS combination would bring, including more efficient north-south trade arteries to support the interconnected supply chains of the United States, Mexico and Canada.

CP and KCS said that this transaction is subject to approval by CP and KCS shareholders along with satisfaction of customary closing conditions, which include Mexican regulatory approvals. Shareholders are expected to vote on this transaction later in 2021.

KCS and CP said that this deal is subject to approval by the Surface Transportation Board (STB), whom last April reaffirmed that it would review the CP-KCS deal under pre-2001 merger rules and also the waiver granted to KCS in 2001 to exempt it from those rules. And they added that STB’s review of this deal is expected to be completed in the second half of 2022. 

Keith Creel, CP President and Chief Executive Officer, said at last week’s RailTrends conference in New York, which was hosted by Progressive Railroading magazine and independent railroad analyst Tony Hatch, that this deal represents what he called a transformational transaction.

“This is a transaction we pursued with vigor and aggressiveness, and we were fighting for what we believed in,” said Creel. “We prevailed, to this point, with grit, determination, and resolve. We are super-excited about this opportunity. It is the one and only transcontinental railroad [through Canada, the United States, and Mexico] and won’t be replicated. In and of itself, it is a unique combination, which is what motivated a lot of this. It is a combination that allows growth and for the pursuit of the next 140 years. We have a franchise that is a leader, and we are in a very good position.”

As for the future CPKC network, Creel explained it is positioned to provide a unique set of outcomes that will be unparalleled in this industry.

“When you think about the need for this, there has never been a greater need,” he said. “I am thinking about the environment we will be serving in a better way, that communities—that because of this transaction—it enables and unlocks investment for infrastructure and installs PTC (Positive Train Control)…and all of the details of running a business and running it efficiently and safely. It will also take trucks off of the road. We have said for a long time that we [trains] are 75% more fuel-efficient. The number of trucks that come across the Mexican border from Laredo into the Midwest, to Kansas City and Chicago and into Canada…to be able to take that environmental opportunity and match it with an economic opportunity will be…is among the reasons we are excited for this opportunity.”