The Board Directs Applicants in the CP/KCS Merger Proceeding to Address an Apparent Inconsistency in Certain Data and Suspends the Procedural Schedule

On March 16, 2022, the Board issued a decision directing the applicants in the proposed Kansas City Southern and Canadian Pacific merger proceeding to address an apparent inconsistency in traffic density data submitted to the Board.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (STB served Mar. 16, 2022).  The Board also provided an opportunity for other parties to reply to the applicants’ submission and suspended the procedural schedule.

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 issued a decision on April 21, 2021, finding that the proposed transaction is a “major” transaction under 49 C.F.R. § 1180.2(a).  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (STB served Apr. 21, 2021).  On April 23, 2021, the Board issued a decision, finding the transaction to be subject to the regulations set forth at 49 C.F.R. Part 1180 Subpart A, in effect before July 11, 2001, pursuant to the waiver for transactions involving KCSR and another Class I railroad, under 40 C.F.R. § 1180.0(b).  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (STB served Apr. 23, 2021).  Additionally, on May 6, 2021, the Board issued a decision, finding that the proposed voting trust arrangement is acceptable, with certain modifications.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (STB served May 6, 2021).

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 [Canadian National (CN)].”  Canadian Nat’l Ry. Co.—Control—Kansas City S., FD 36514 at 1 (filed May 21, 2021).  KCS noted that it was withdrawing as a co-applicant in the FD 36500 proceeding but, to the extent the proceeding continued, KCS intended 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 [a]pplication.”  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 at 1 (filed May 21, 2021).  The Board later rejected CN and KCS’s joint motion for approval of a voting trust agreement, and CN filed a letter on September 16, 2021, informing the Board that the merger agreement between CN and KCS had been terminated by KCS.  See 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.  On October 29, 2021, CP and KCS filed an application (the Application), seeking approval for the proposed combination of CP and KCS.  The Board issued a decision accepting the Application for consideration.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (STB served Nov. 23, 2021). 

On March 16, 2022, the Board issued a decision directing the applicants to address an apparent inconsistency in certain data submitted to the Board.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (STB served Mar. 16, 2022).  The Board stated that the applicants had submitted traffic density charts in Exhibit 14 of the Application, as required by 49 C.F.R. § 1180.8(A)(5), including 2019 baseline gross ton-miles per mile of road (GT/M) data for CP and KCS lines.  Id., slip op. at 2.  However, one day before filing the Application, CP had submitted certain materials, developed in cooperation with KCS, in response to an information request from the Board’s Office of Environmental Analysis (OEA).  Id.  CP’s submission included 2019 baseline GT/M data for CP and KCS lines.  Id.  According to the Board, the 2019 baseline GT/M data submitted to OEA appears to differ from the 2019 baseline GT/M data submitted with the Application.  Id., slip op. at 2-3.

The Board noted that this apparent inconsistency was raised in the context of a responsive application filed in this proceeding by CN.  Id., slip op. at 3.  In a reply to CN’s description of its anticipated responsive application, the applicants suggested that “the two sets of baseline data resulted from differences in how KCS and CP calculate such data.”  Id.  The Board directed the applicants to, by March 21, 2022, “explain further this apparent inconsistency . . . and to indicate which 2019 baseline data should be used in analyzing the environmental and transportation impacts of the [t]ransaction, and the reasons why that data should be used.”  Id.  Additionally, the Board stated that replies to the applicants’ submission would be due no later than five days after the submission and that the Board would suspend the procedural schedule pending further order by the Board.  Id.

On March 21, 2022, the applicants filed a response to the Board’s decision.  The applicants provided a further explanation for the differences in the 2019 baseline data and stated that all comparisons between pre-transaction (base year 2019) traffic levels and post-transaction traffic levels should begin with the 2019 “base” data reflected in the information provided to OEA and in the workpapers that accompanied the Application, and not the 2019 density data set forth in Exhibit 14 of the Application.  See Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 at 2-3, 4-11 (filed Mar. 21, 2022).  The applicants also urged the Board to reinstate the procedural schedule promptly upon receipt of any replies, or immediately in the event no such replies are filed, and proposed certain adjustments to the schedule.  Id. at 12-13.

CN and Norfolk Southern Railway Company filed replies to the applicants’ submission.  On March 29, 2022, the applicants filed a letter stating that neither reply warrants any further suspension in the procedural schedule and proposing that the Board reinstate the procedural schedule with certain adjustments.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 at 1-2 (filed Mar. 29, 2022).  Pursuant to the Board’s decision served on March 16, 2022, the procedural schedule remains suspended pending further order by the Board.

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