The Surface Transportation Board’s Antitrust Review of Kansas City Southern Bids

Twenty years after issuing stronger regulations for the Surface Transportation Board’s review of railroad mergers, the STB is finally reviewing a merger of two Class I carrier railroads. But it’s not the merger that the Board expected to be reviewing two months ago.

On March 21, 2021, Canadian Pacific Railway (CP) announced it had reached an agreement to acquire Kansas City Southern for $29 billion. Both firms were Class I rail carriers as defined by the STB, meaning that they each had annual revenues of $505 million. The STB has authority to review mergers between Class I carriers.1 This was the first such merger since the STB finalized its “Major Rail Consolidation Procedures” regulations in 2001.2 Those regulations heightened the scrutiny that the STB would apply to Class I carriers’ mergers, but included a waiver of that scrutiny for transactions involving Kansas City Southern, unless the Board determined that the 2001 regulations should apply. Competing railroads and shippers urged the STB not to apply the waiver to this transaction.3 The Department of Justice also filed a comment through its Antitrust Division, objecting to the proposed use of a voting trust structure because of the effects on the firms’ incentives of such a structure, and because a voting trust could undermine the STB’s ability to conduct a meaningful review of the transaction or order divestitures as remedies.4 But the STB determined that the waiver in the 2001 rules should still apply twenty years later in the transaction with CP.5 The Board noted that Kansas City Southern’s rail network overlapped less with CP’s than with any other Class I railroad, and that the combined company would still be the smallest Class I railroad. The STB subsequently approved the CP-Kansas City Southern voting trust.6

While the STB was considering whether the Kansas City Southern waiver applied to the transaction with CP, another competing railway, Canadian National (CN), stepped in with a $33.7 billion offer for Kansas City Southern, approximately 20% higher than CP’s offer. After CP declined to increase its offer, Kansas City Southern terminated its merger agreement with CP and entered into a merger agreement with CN.7 Unlike in the proposed merger with CP, the Board determined that the Kansas City Southern waiver provision in the 2001 consolidation regulations should not apply to the CN merger.8 CN had previously argued that the waiver provision should not apply to the CP transaction, and committed to filing for approval under the heightened regulations. The Board affirmed CN’s commitment to doing so, and separately determined that the CN-Kansas City Southern transaction posed issues that the merger rules were designed to address, including parallel, competing routes.

CN’s proposed merger with Kansas City Southern also included a voting trust. The DOJ’s Antitrust Division also filed a comment on the CN-Kansas City Southern merger, but with stronger terms. The DOJ’s comment recommended that the STB should not permit CN to utilize a voting trust.9 It noted that, though the terms of the CP and CN voting trusts were similar, CN’s proposed acquisition of Kansas City Southern appeared to pose greater risks to competition than CP’s proposed acquisition in part because CN and Kansas City Southern compete directly on certain routes, and thus the Board should hold CN’s acquisition to a higher bar.

Despite the DOJ’s opposition, CN and Kansas City Southern sought approval of their proposed voting trust on May 26. On June 8, the Board issued an order seeking additional information from CN and Kansas City Southern, which was filed on June 14. Much of the information that CN and Kansas City Southern provided was redacted from public view. But the public filing includes a statement from Kansas City Southern’s Chief Financial Officer outlining the railroad’s financial status and its ability and commitment to continue its current capital investment plan after the transaction with CN.

The June 8 STB order also set a schedule for comments on the proposed voting trust agreement, to be due by June 28, and a deadline for CN and Kansas City Southern’s replies to the comments on July 6.

1 49 U.S.C. § 11324.

2 49 CFR 1180

3 See public comments, Finance Docket 36500, Surface Transportation Board Proceedings & Actions, available at

4 See “Comment of the United States Department of Justice,” Finance Docket No. 36500, April 12, 2021, available at

5 Decision, April 23, 2021, Docket No. FD 36500, available at

6 Decision, May 6, 2021, Docket No. FD 36500, available at

7 Letter from William A Mullins on behalf of Kansas City Southern, May 21, 2021, Docket No. FD 36514.

8 Decision No. 3, May 17, 2021, Docket No. FD 36514, available at

9 “Comment of the United States Department of Justice,” Finance Docket No. 36514, May 14, 2021, available at

Share this post: