UP Petitions STB to Reject CP-KCS Merger Application

On November 19th the Union Pacific Railroad (UP) submitted a petition to the Surface Transportation Board (STB) to reject the application for the Canadian Pacific (CP) to acquire Kansas City Southern (KCS). The petition submitted by the UP states that the grounds for the rejection is that the application is “incomplete”.

The UP contends that “the application’s principal failing is the exclusion of approximately 360,000 carloads, or more than 32% of the potentially divertible traffic, from its diversion analysis.” The UP explains that “as a result, the application fails to describe the impacts of the proposed transaction — both adverse and beneficial — on a significant portion of traffic that applicants themselves identified as potentially affected by the proposed transaction.”

Frustration And Paper

The UP purports that the application does not include all the information needed to satisfy the “Market Analyses” and “Operational Data”. The regulations that the UP has called into question are 49 C.F.R. 1180.7 & 1180.8. As follows is summary of each code:

49 C.F.R. 1180.7

  • Market Analyses
    • Applicant(s) must perform a Market Analyses that provides resulting or likely effects of the merger including service, competition, market plans, existing and potential competitive alternatives.
    • Applicant(s) must submit a full system impact analysis, both adverse and beneficial as it relates to competition: intermodal, intramodal, products, and geographic.

49 C.F.R. 1180.8

  • Operational Data
    • Applicant(s) must submit a full system operating plan that demonstrates how the proposed operation will affect operations within the United States.
    • Applicant(s) must submit an impact analysis detailing the timing, rehabilitation, upgrading, and yard construction required to meet operational needs. Elements include gains in service, operating efficiencies, other anticipated benefits, and environmental impacts.

Crumpled Paper

Since the original announcement of the CP-KCS merger announcement, most of the attention has been focused on the effect on the Canadian National (CN). After the announcement of the CP-KCS merger, the CN put forth their own application, and kicked off a lengthy back and forth between the two Canadian based Class 1 carriers. The merger of the CP and KCS would negatively affect the CN, and, aside from the CN, the UP is the other carrier who stands to be most adversely affected by the CP-KCS consolidation. The UP currently shares 44 interchanges with the CP, and 2 with the KCSM. In the case where the UP acts as the bridge carrier between the CP and the KCSM on Mexican traffic, the UP will more than likely be transitioned out of the route.

It was just a matter of time before we heard from the UP. To view the entire docket, please click on the following link: https://www.progressiverailroading.com/resources/editorial/2022/303229.pdf

Since the CN-CP-KCS merger has been a quickly evolving situation with multiple changes in the applications, we have outlined some of the major dates in the timeline below:

Stacks Of Paper

CP-KCS Merger

March 21, 2021 – The CP and KCS announce they have entered into a merger agreement.
April 20, 2021 – CN announces they have made a bid to merge with KCS.
April 23, 2021 – STB announces they will review the proposed merger.
May 13, 2021 – CN revises offer to KCS to compete with CP.
May 13, 2021 – KCS deems the CN proposal “superior” to the CP, KCS notifies the CP that intends to terminate the CP merger agreement.
May 21, 2021 – KCS announces it terminated the CP merger agreement and entered into the merger agreement with CN. KCS pays a breakup fee of $700 million USD.
May 21, 2021 – CN announces intent to file an application with the STB seeking authority to control KCS.
May 26, 2021 – CN and KCS filed a renewed motion with the STB for its voting trust to advance the CN-KCS merger, outlining the case for approval.
June 23, 2021 – The National Industrial Transportation League (NITL) releases a statement favoring a review by the STB under its merger rules adopted in 2001.
Sep 12, 2021 – KCS adopts the CP merger offer.
Sep 15, 2021 – CN chooses not to pursue their KCS merger.

You can view the rest of our blogs detailing the CN-CP-KCS merger with more information here: