CN Withdraws its Prefiling Notification in Proposed CN/KCS Merger Proceeding; CP and KCS File Application in Proposed CP/KCS Merger Proceeding

Two potential merger proceedings involving Kansas City Southern have been pending before the Surface Transportation Board (Board) – Docket No. FD 36500, regarding a potential merger with Canadian Pacific, and Docket No. FD 36514, regarding a potential merger with Canadian National.  On October 20, 2021, the Board granted Canadian National’s request to withdraw its prefiling notification in the proposed CN/KCS merger proceeding.  Canadian Nat’l Ry. Co.—Control—Kansas City S., FD 36514 (STB served Oct. 20, 2021).  On October 29, 2021, Canadian Pacific and Kansas City Southern filed an application seeking approval for the proposed CP/KCS merger.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (filed Oct. 29, 2021).

On March 23, 2021, Canadian Pacific Railway Limited (Canadian Pacific), Canadian Pacific Railway Company, and their U.S. rail carrier subsidiaries (collectively, CP), and Kansas City Southern and its U.S. rail carrier subsidiaries (collectively, KCS), notified the Board of CP and KCS’s intent to file an application seeking authority under 49 U.S.C. §§ 11323-25 for the acquisition of control by Canadian Pacific, through its indirect, wholly owned subsidiary, Cygnus Merger Sub 2 Corporation, of Kansas City Southern.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (filed Mar. 23, 2021).  The applicants stated that they were also seeking authority for the acquisition of control by Canadian Pacific, through Kansas City Southern, of The Kansas City Southern Railway Company (KCSR) and its railroad affiliates, and for the resulting common control by Canadian Pacific of both its U.S. railroad subsidiaries and KCSR and its railroad affiliates.  Id. at 1.  The applicants noted that Canadian Pacific and Kansas City Southern entered into an Agreement and Plan of Merger on March 21, 2021.  Id. at 2.  The Board later found that a voting trust arrangement is acceptable, with certain modifications, in this proceeding.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (STB served May 6, 2021).

On April 20, 2021, Canadian National Railway Company (CNR), Grand Trunk Corporation, and their rail operating subsidiaries (collectively, CN) submitted a prefiling notification of their intent to file an application seeking authority under 49 U.S.C. §§ 11323-25 for the acquisition of control by CNR, through its wholly owned subsidiary Brooklyn Merger Sub, Inc., of KCS.  Canadian Nat’l Ry. Co.—Control—Kansas City S., FD 36514 (filed April 20, 2021).  The applicants stated that they were submitting the prefiling notification “in the event that [KCS] accepts an acquisition proposal that CN conveyed to [KCS’s] Board of Directors on April 20, 2021.”  Id. at 1.

KCS filed a letter on May 21, 2021 in Docket Nos. FD 36500 and FD 36514, stating that “KCS has terminated the CP merger agreement and entered into a merger agreement with CN.”  Canadian Nat’l Ry. Co.—Control—Kansas City S., FD 36514 at 1 (filed May 21, 2021).  KCS noted that it is withdrawing as a co-applicant in the FD 36500 proceeding but, to the extent the proceeding continues, KCS intends to remain a party of record.  Id.  On May 21, 2021, CP filed a letter in Docket No. FD 36500 stating that “CP intends to proceed to prepare and file its Application.”  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 at 1 (filed May 21, 2021). 

On May 26, 2021, CN and KCS filed a joint motion for approval of a voting trust agreement.  In a decision served on August 31, 2021 in Docket No. FD 36514, the Board rejected CN and KCS’s joint motion for approval to use a voting trust.  Canadian Nat’l Ry. Co.—Control—Kansas City S., FD 36514 (STB served Aug. 31, 2021).  The Board noted that the CN/KCS proceeding is the first occasion on which the Board has applied “the public interest test in 49 C.F.R. § 1180.4(b)(4)(iv) to a proposed voting trust within the context of an impending merger application.”  Id., slip op. at 20.  The Board found that the applicants had adequately explained how the voting trust agreement would insulate them from an unlawful control violation, but the applicants “have not demonstrated that their use of a voting trust would have public benefits.”  Id., slip op. at 2, 17.  The Board also found that “there are public interest risks to competition and divestiture associated with the use of a voting trust in the context of the impending control application.”  Id., slip op. at 17.  Thus, the Board rejected CN and KCS’s joint motion.  CN filed a letter on September 16, 2021, informing the Board that the merger agreement between CN and KCS has been terminated by KCS and thus, CN was withdrawing its April 20, 2021 prefiling notification.  Canadian Nat’l Ry. Co.—Control—Kansas City S., FD 36514 at 1 (filed Sept. 16, 2021).  The Board subsequently granted CN’s withdrawal request.  Canadian Nat’l Ry. Co.—Control—Kansas City S., FD 36514 (STB served Oct. 20, 2021). 

On September 15, 2021, CP and KCS filed an amended notice in Docket No. 36500 regarding their plan to file an application seeking authority for the acquisition of control by CP of KCS.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (filed Sept. 15, 2021).  The parties stated that KCS had terminated its merger agreement with CN on September 15, 2021, and on the same day executed a merger agreement with CP.  Thus, the KCS applicants were “rejoining CP as co-applicants and will proceed jointly to apply for Board approval for the proposed combination.”  Id. at 2.  The parties noted that their September 15 merger agreement “contemplates the same transaction on terms identical in nearly every respect to those set forth in the [March 23, 2021] Merger Agreement.”  Id. at 3. 

On September 30, 2021, the Board issued a decision in Docket No. 36500, providing notice of receipt of the amended CP/KCS notice.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (STB served Sept. 30, 2021) (with Board Member Primus dissenting).  The Board noted that “[t]he information provided in the amended notice indicates that Applicants intend to seek approval of the same transaction . . . that was proposed in the March 2021 Notice.”  Id., slip op. at 4.  Additionally, the Board found that, “[b]ased on the information contained in the amended notice, there is no reason for the Board not to apply its previous approval granted in Decision No. 5 for Applicants to use the voting trust described in the amended notice.”  Id. 

On October 29, 2021, CP and KCS filed an application “seek[ing] Board approval for the proposed combination of CP and KCS, pursuant to which CP would acquire and exercise control of KCS.”  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 at 1 (filed Oct. 29, 2021).  The applicants stated that, “[i]mmediately following completion of the Merger, [Canadian Pacific] would conduct a series of internal transactions that would result in its voting interest in the successor to KCS being placed into a Voting Trust pending review and approval of the control Transaction by the Board.”  Id. at 2.  Additionally, the applicants stated that, if and when the Board grants the application, “the Voting Trust will be terminated and Canadian Pacific will assume control of KCS and its U.S. railroad subsidiaries.”  Id. at 3.  The applicants claim that the transaction will “generate extraordinary public benefits across all aspects of the relevant statutory factors . . . [and] will enhance competition, improve the quality and capacity of rail transportation services, fuel economic growth, accommodate additional passenger service, improve the environment, benefit shippers, employees and other stakeholders, and do so without any adverse impacts.”  Id. at 10.  According to the applicants, the proposed transaction is supported by “more than 960 third parties, including 459 shippers, 186 smaller railroads, dozens of public officials, eight major ports, and 280 rail industry suppliers and other stakeholders.”  Id.

The Board issued a decision on November 2, 2021 in Docket No. 36500, inviting public comments on a proposed procedural schedule for the CP/KCS proceeding.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (STB served Nov. 2, 2021).  Comments on the proposed schedule must be filed by November 12, 2021.

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