La. passenger rail closer to reality, but antitrust concerns remain

By Christopher Tidmore
Contributing Writer

On Thursday, August 12, the Board of Directors of the Kansas City Southern Railroad unanimously decided to back a merger with Canadian National Railroad over rival Canadian Pacific. The move justifies the creation of the entire new continental railway mostly upon inauguration of a commuter rail corridor between Baton Rouge and New Orleans.

Governor John Bel Edwards and other Louisiana elected officials have sent letters in recent weeks to the KCS board endorsing a Canadian National merger, but Democrats on the national level and many the Republicans in Illinois and the Midwest object to the CN deal, preferring the Canadian Pacific offer. The former argue that the consolidation of freight rail lines in Chicago would create congestion, and the latter that the merger of KCS/CN freight rail hubs in the Midwest would hurt grain farmers. In contrast, the KCS and CP Railroads have virtually no overlapping routes, their systems coming together almost seamlessly near St. Louis. Few antitrust objections exist. Moreover, an joined Canadian Pacific and Kansas City Southern merged railroad would still remain the smallest of the (remaining) five major railway companies.

Moreover, unlike the CN bid, a KSC/CP merger would have no need to sell a key rail link in Louisiana along the Mississippi River that Gov. Edwards and local political leaders seek to make a dedicated commuter rail corridor, freed from giving freight trains the “Right of Way” and able to make constant and fast commuter railway service in Louisiana a reality.

Canadian National has said it believes it can address the competitive concerns through its operating plan and, in particular, by selling the aforementioned 70 miles of track between New Orleans and Baton Rouge, Louisiana, where Kansas City Southern’s network directly overlaps with CN’s tracks. Canadian National said that after the merger it would also maintain its connections with other railroads to allow customers to ship goods using a combination of different railroads if they choose.

The CP leadership has urged the U.S. Surface Transportation Board to reject the merger, allowing their $2.6 Billion less generous offer of a merger to be the only option for the KCS Board to accept. To sweeten the proverbial pot, on last Tuesday, Canadian Pacific jumped back into the bidding war for Kansas City Southern with an increased $31 billion offer for the U.S. railroad, but that latest bid still remains lower than the rival $33.6 billion offer from Canadian National. CP originally offered just $25 billion, leading the KCS Board to entertain the higher CN bid last May.

KCS shareholder vote to accept the CN bid is scheduled on Aug. 19, but the KCS board did say that it might postpone that vote if the U.S. Surface Transportation Board refuses to issue its decision on a key part of Canadian National’s acquisition plan before Tuesday. The STB said earlier this week that by Aug. 31, it will release its decision on Canadian National’s proposal to use a voting trust that would acquire Kansas City Southern and hold the railroad during the STB’s lengthy review of the overall deal. Failure to obtain that key approval would likely derail the deal. Regulators have declared that any deal involving one of the nation’s six largest railroads must enhance competition and serve the public interest in order to get approved. STB has also said it would refuse any deal could “destabilize the industry and prompt additional mergers.”

This article originally published in the August 16, 2021 print edition of The Louisiana Weekly newspaper.