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U.S. Justice Dept. urges rejection of CP voting trust


Reuters — The U.S. Justice Department on Friday urged a regulator to reject a voting trust Canadian Pacific Railway (CP) has proposed as part of its takeover bid for U.S. railway Norfolk Southern, saying it could hurt competition and would violate rules.

In mid-November, CP disclosed a $28 billion offer for the Virginia-based company, which has rebuffed all advances from the railroad (all figures US$).

CP proposes sending its CEO, Hunter Harrison, to run Norfolk Southern as part of that trust. But the rules of the U.S. Surface Transportation Board require the companies to run independently of each other while it reviews any deal.

The Justice Department said in a statement that it had told the STB that the voting trust would also fail to preserve the companies’ independence during the review.

Calgary-based CP, Canada’s second-largest railroad, has said a merger would result in savings of more than $1.8 billion annually. It did not immediately respond to a request for comment on Friday.

If Norfolk Southern accepts CP’s bid, this would be the first such review by the STB since the regulator’s merger rules were rewritten in 2001. The new rules are tougher and include additional regulatory hurdles.

The letter comes in response to a March 2 petition from CP to the STB seeking a “declaratory order” on its voting trust proposal.

In its statement, the Justice Department said that by effecting a management change in Norfolk Southern, CP’s proposal “is even more pernicious in its failure to preserve competition than a typical voting trust.

“The STB should find that the proposal fails under each prong of the revised regulatory requirement — it creates unlawful control violations and is against the public interest,” the statement said.

Experts had said the voting trust structure CP proposed would face tough scrutiny from the STB.

On Thursday, the U.S. Department of Defense also raised concerns with the STB over CP’s proposed voting trust.

Last Tuesday, Rep. Bill Shuster, chairman of the U.S. House of Representatives’ transportation and infrastructure committee, also stated his opposition to CP’s proposal.

“I do not believe it is in the best interests of the U.S. freight transportation system, railroad employees, rail shippers and the short line railroads,” he said in a statement. “I believe it is time for all parties to move on from hypothetical merger proposals.”

Reporting for Reuters by Nick Carey in Chicago and Timothy Ahmann in Washington, D.C.

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