CP Rail Wins Regulator Exemption From Tougher 2001 Merger Rules

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Canadian Pacific Railway Ltd. won a petition for its proposed tie-up with Kansas City Southern to be exempt from tougher merger rules that the regulator had established in 2001, lowering the burden for winning approval of the deal.

The Surface Transportation Board, which is the final authority on rail acquisitions, said it approved the petition in part because a combination of CP and Kansas City would remain the smallest of the large North American railroads. The board also said that the combination would “result in the fewest overlapping routes” when compared to a Kansas City Southern merger with any other large railroad.

“The interrelationship between the CP and KCS networks in fact appears to be end-to-end in nature,” the board said, “which likely raises fewer competitive concerns than a transaction that is not end-to-end.”

The ruling will lower the bar for CP to gain approval of its $25 billion bid for Kansas City Southern, which would create the first railroad operating in the U.S., Canada and Mexico. This ruling doesn’t pertain to a bid submitted later by rival Canadian National Railway Co. to acquire Kansas City Southern for $30 billion.

The exemption dates back to when the STB sought to cool a flurry of railroad mergers since deregulation in 1980 that at times hurt service. The higher standard for acquisitions included creating a public benefit as well as improved service. The board at the time specifically exempted Kansas City Southern, the smallest of the large railroads and the only one whose tracks run mostly north-south, from the tougher rules.

“The transaction appears to fall neatly into the board’s rationale for adopting the waiver in the first instance,” the STB said in the ruling.

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