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Presumably KCS’ trackage rights will pass to the new entity. These trackage rights were a condition of the UP/SP merger so UP can’t just arbitrarily terminate them.

I’m not privy to the details of this particular agreement between UP and KCS but, most trackage rights agreements will place a limit on the number of movements the guest railroad can make.

Curt

I don't know anything about the reasons for this merger.  Maybe it makes sense, maybe not.  Some mergers happen just because a company is sitting on a pile of cash and the board doesn't know what to do with it.  The default option is to buy another company.  

My overall take is that there have been to many mergers of railroads and other companies.  This destroys price and service competition.  I think that regulators should take a hard look at this.  Bigger is not always better.  NH Joe

Mergers of this size must first be submitted, 30 days in advance of the proposed closing date, to the U.S. Justice Department, so that they can review it to see if it is anti-competitive under the Sherman Anti-Trust Act.  If they fail to respond, or issue a clearance letter, then the merger can go forward.

Often, however, they stop the merger, and issue comments as to why they feel that it would be anti-competitive.   They also issue suggestions for changes to the merger, so that it doesn't stifle competition.

Each company is entitled to respond with comments, and the parties can then go back and forth with suggested changes to the deal, to satisfy the Justice Department.  This often goes on for 1 to 2 years.

If the companies do not agree with the Justice Department's determinations, and won't change the terms,  then the Justice Department sues them in Federal District Court to stop the merger, and the companies are entitled to a Jury Trial. (Remember, that going forward with the merger is a criminal offense under the Anti-Trust Act, if in fact it will have an anti-competitive effect on the market.)

This process is just one of a 100 things that the M&A attorneys have to deal with in attempting to negotiate, execute and close a major merger.

Oh well, a billion here, a billionaire there,  . . . pretty soon it adds up to serious change!

Mannyrock

Manny:

There is a different process for rail mergers. DOJ and the FTC may express opinions but, the US Surface Transportation Board will be the agency that actually reviews the proposed merger and attaches any conditions they believe necessary to address competitive concerns. The merging parties may then accept the conditions and proceed with the merger, file an appeal with an appellate court to contest the conditions or, simply scrub the merger and walk away.

What has happened to this point is the STB has issued a ruling that a waiver from new merger rules given KCS back in 2001 still applies. This means that if CP and KCS submit a merger application to the Board, it will be reviewed under the old merger rules in effect up until 2000. Basically those old rules placed greater importance on what was best financially  for the railroads involved in the merger than the potential for negative impact on competition in the industry.

The newer major merger rules the Board issued in 2001, require carriers proposing a major merger (in the STB’s apparent definition - any merger between Class 1 railroads that doesn’t involve KCS) to outline in their application the mergers potential impact on rail competition and provide their proposed remedies. Additionally, the participants in a major merger must outline the steps they will take to prevent any industry wide service disruptions resulting from the merger.

In short, the focus of the new rules is preserving or enhancing competition and preventing the service disruptions that were common with past mergers.

Since CP and KCS first announced their intention to merge, CN has submitted a merger proposal to the KCS board which they must now review. Should the KCS board decide to move forward and negotiate a merger agreement with CN; CN has said they believe the STB should review their proposal to merge with KCS using the newer major merger rules. (And I have confirmed this with my old CN account manager this afternoon.)

This is going to get interesting and popcorn and a cold beverage are recommended! 😉

Curt

Lots of things to derail the plot:

1.  Someone or body could sue saying the KCS exception is "discrimination"

2.  Activity inside Interstate 495.  Congress could pass new rules which effect this merger or the STB.  Or new rules about foreign owership

3.  Mexico. Does KCSdeM "own" the tracks, or just "uses" them?

4.  Canada?  Does its government have a say?

5.  New replacement for NAFTA?  Will there be ripple effects?

Lots of moving parts.  GAME OF THRONES:  RAILROAD EDITION.....!

Last edited by Dominic Mazoch

How many of you remember when KCS wanted a piece of The Rock?  It would have extended the KCS from Kansas City to the Twin Cities and was to be known as the Kansas City Northern.  Once again, another big blunder occurred when the DC Idiot Club rejected the plan, and the KCN became a stillborn railroad.

Why did the DC Idiot Club jump in to save the Northeast railroads that became Conrail but put The Rock out to pasture?

Item:  Though rejected by several carriers, Union Pacific and Southern Pacific wanted a piece of The Rock.  UP's slice of the pie was the RI lines north of Kansas City, while Espee, the RI lines south of KC.

How many of you remember when KCS wanted a piece of The Rock?  It would have extended the KCS from Kansas City to the Twin Cities and was to be known as the Kansas City Northern.  Once again, another big blunder occurred when the DC Idiot Club rejected the plan, and the KCN became a stillborn railroad.

Why did the DC Idiot Club jump in to save the Northeast railroads that became Conrail but put The Rock out to pasture?

Item:  Though rejected by several carriers, Union Pacific and Southern Pacific wanted a piece of The Rock.  UP's slice of the pie was the RI lines north of Kansas City, while Espee, the RI lines south of KC.

There were at the time 5 or 6 railroads which did the eastern Council Bluffs to Chicago relay.  If UP got the Rock, 5 other roads would be in world of hurt.  But in this case, UP would have done the job to the granger roads what CR did in the East.

SP did buy The Golden State Route.  But they did not buy the line to Memphis along I40.  Those two would have bypassed the Sunset Route in Texas, speeding intermodal traffic.

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