Canadian Pacific, Kansas City Southern Assert Right to have Transaction Reviewed Under Waiver Granted to KCS in 2001

Canadian Pacific Railway Limited (“CP”) and Kansas City Southern (“KCS”) today made a filing with the Surface Transportation Board (“STB”) asserting their right to have the STB review their combination under a waiver the STB granted to KCS in 2001. The filing was made in response to objections to the application of the KCS waiver that were filed with the STB by competitors and others.

The STB granted KCS, the smallest of the Class 1 railways, an exemption from the new merger rules in 2001 because a combination involving KCS did not raise the same concerns that any transaction between the larger six Class 1s might create. CP and KCS explained in their filing that the logic under which the 2001 exemption was granted remains valid today. The combination would provide stronger competition against the larger Class 1s that grew through mergers under the old rules. The filing states that the only impact on competition will be that the transaction forces the other Class 1s to “face more of it.”

CP and KCS welcome a thorough and fair STB approval process for the planned creation of the first U.S.–Mexico–Canada rail network announced last month. Revoking the waiver would unnecessarily complicate and prolong the Board’s review.

CP and KCS noted in the filing that “[n]o party has raised any basis for concern with the merits of the transaction itself; rather, they merely seek to make the already-robust regulatory review process more time-consuming and burdensome.”

More than 375 shippers, ports, partners and customers have filed letters with the STB supporting the opportunity for a seamless, single-line route from Canada to Mexico. Supporters have asked for a swift and efficient process under the waiver to complete the transaction so the systems can be integrated, and the end-to-end benefits can be realized for the benefit of customers and all stakeholders.

Former STB Board Member William Clyburn, Jr. said in a statement to the STB: “I believe that the reasons for adopting the KCS waiver from the New Merger Rules are just as valid today as they were back then, especially as applied to the proposed CP/KCS transaction.”

Clyburn is uniquely positioned to provide this opinion because he cast the deciding vote in the Board’s decision to grant KCS a waiver from application of the New Merger Rules.

Former U.S. Senator Byron Dorgan (D-ND) said in a letter filed to the STB: “No party here has objected or raised a concern specific to this transaction between CP and KCS, the two smallest railroads in the industry that would remain the smallest railroad even after their combination. It would not reduce competition for any customer and it injects additional competition with new single-line services. So, there are benefits to be extracted from this particular merger.”

Dorgan continued, “And I urge the Board not to crack the dam that has held back harmful transcontinental mergers for more than two decades by applying the new merger rules to the CP-KCS proposal. The STB should apply the Old Rules to CP-KCS so that the new merger rules remain untested and their uncertain implications will continue to deter further consolidation.”

Once combined, CP-KCS would remain the smallest of the Class 1s by revenue. In addition, there is no overlap in their networks, which will join seamlessly in Kansas City, MO.

The filing outlines key reasons for affirming use of the 2001 waiver for KCS:

1.The CP-KCS application will contain all information necessary to meet the public interest assessment of the governing statute, including service assurances, competitive analysis, and system impacts.

2.CP and KCS are uniquely complementary and their combination is pro-competitive and poses none of the concerns that motivated the 2001 revisions.

3.All of the issues that objectors say require application of the 2001 rules can readily be addressed under the tried-and-true pre-2001 rules, with which the Board has considerable experience.

4.Applying the 2001 merger rules would unnecessarily complicate the review process and could impede the realization of the compelling benefits for rail customers and harm the public interest.

5.The application to the STB for a “plain vanilla” voting trust, of the kind customarily used in railroad mergers fits the pre-2001 rules and is not controversial.

CP and KCS are seeking approval from the STB for the combination, which also remains subject to the approvals of CP and KCS shareholders and satisfaction of other customary closing conditions. The STB review is expected to be completed by the middle of 2022.

For more information on the transaction and the benefits it is expected to bring to the full range of stakeholders, visit FutureForFreight.com.

About Canadian Pacific

Canadian Pacific is a transcontinental railway in Canada and the United States with direct links to major ports on the west and east coasts. CP provides North American customers a competitive rail service with access to key markets in every corner of the globe. CP is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit cpr.ca to see the rail advantages of CP. CP-IR

About KCS

Headquartered in Kansas City, Mo., Kansas City Southern (KCS) (NYSE: KSU) is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. Its primary U.S. holding is The Kansas City Southern Railway Company, serving the central and south central U.S. Its international holdings include Kansas City Southern de Mexico, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lázaro Cárdenas, Tampico and Veracruz, and a 50 percent interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal. KCS’ North American rail holdings and strategic alliances are primary components of a railway network, linking the commercial and industrial centers of the U.S., Mexico and Canada. More information about KCS can be found at www.kcsouthern.com.

Source: Canadian Pacific Railway Limited