CN and Canadian Pacific vie for shippers’ and KCS shareholders’ favor

Rivals CN (NYSE: CNI) and Canadian Pacific (NYSE: CP) are vying to win the public’s favor for which Canadian railway is better suited to merge with Kansas City Southern (NYSE: KSU).

CP and Kansas City Southern (KCS) announced their agreement to merge in March, while CN announced its plans to acquire KCS in April. In both situations, the end result would be a railroad with a network that touches both Canadian coasts and heads south through the U.S. Midwest and into Mexico.

On Monday, CP said more than 110 customers and stakeholders have filed letters to the Surface Transportation Board (STB), the regulatory body that will review the merger. The letters express concerns or oppose CN’s bid to acquire KCS, according to CP.

The letters came from groups such as the North Dakota Grain Dealers Association, US Development Group and Farmers Cooperative of Hanska as well as the New Brunswick premier, CP said. They argue that a CN-KCS merger would decrease competition, provide inferior service options or limit options for captive shippers, according to CP.

CP said it has received almost 500 letters from shippers and stakeholders supporting a CP-KCS merger.

CP said it also filed a formal objection to STB on Saturday asking that the board not grant a waiver that would allow a CN-KCS merger to be exempt from post-2001 rules governing rail mergers.

STB recently had granted a waiver that exempted CP and KCS from the post-2001 rules. KCS was given an opportunity to waive itself from following the post-2001 rules because of its size at the time.

The post-2001 rules require potential merging companies to show a merger would enhance competition, while the pre-2001 rules look at how mergers would restrict competition. The post-2001 rules are viewed as being a higher threshold to overcome.

CP told STB on Saturday that because CN is a much larger railroad than CP, its merger application should not be granted a waiver from post-2001 rules. CP also gave other reasons: network overlaps between CN and KCS; potentially material downstream impacts to other railroads; the premium price CN is willing to pay for KCS, which will require CN to find ways to recoup extra costs; and concerns over decreasing competition. CN has also committed itself to following the new merger rules, CP said.

CN appeals to KCS shareholders and shippers

Meanwhile, also on Monday, CN released a letter its leaders, CEO JJ Ruest and COO Rob Reilly, penned to the “KCS community” on why CN would be a better partner.

Among the reasons CN gave were that it would preserve existing route choices; create new shipping options by competing with Mississippi River barge traffic and truck traffic on Interstates 35 and 55; and provide more competition via connections to access points and gateway options that KCS customers might not have had previously.

CN also said it has received more than 600 letters of support from customers, suppliers, port operators, elected officials and others over the proposed merger. Those letters were written for STB.

“CN has been a part of the fabric of the American industrial heartland for decades, with the highly successful acquisitions and integrations of Wisconsin Central, Illinois Central, the EJ&E and other iconic U.S. railroads,” the letter said. “We hope we can count on your support so that CN and KCS together can embark on the next phase of the process towards creating the premier railway for the 21st century.”

Subscribe to FreightWaves’ e-newsletters and get the latest insights on freight right in your inbox.

Click here for more FreightWaves articles by Joanna Marsh.

CN appeals to KCS shareholders and shippers

Related links: