STB Halts CN-KCS Voting Trust

The Surface Transportation Board on Tuesday announced a unanimous decision rejecting the use of a voting trust agreement in connection with the proposed transaction between Canadian National Railway (CN) and Kansas City Southern Railway (KCS).

CN has offered $33.6 billion for KCS, providing a new potential single rail line from Canada to Mexico. Yet, CN also is in competition with Canadian Pacific Railway, which had initially offered a $29 billion bid to buy KCS.

CN had been aggressively filing letters of support from shipping companies in a bid for the STB to approve its proposed voting trust. Still, the STB determined that the proposed voting trust is not consistent with the public interest standard under the Board's merger regulations.

In the STB's decision the board said that "The proposed use of a voting trust in the context of the impending control application does not meet the standards under the current merger regulations and therefore denies the applicants' motion for authorization to establish and use the proposed voting trust."

On Aug. 19, the KCS announced that it convened and adjourned the Special Meeting of Stockholders for KCS stockholders to vote on the previously announced definitive merger agreement with Canadian National and other proposals until 9 a.m., CDT, on Sept. 3, 2021.

In that Aug. 19 press release on their website, KCS executives stated they, along with the CN were "confident that the voting trust meets all the standards and the public interest test set forth by the STB and believe that it should be approved. KCS stockholders will receive the merger consideration immediately upon the closing of the voting trust, which is also subject to receipt of KCS stockholder approval and Mexican regulatory approvals."

But the STB cited in its decision that "Applicants have not demonstrated that their use of a voting trust would be consistent with the public interest. Applicants have shown no benefit from the use of a voting trust to stakeholders other than KCS and CN. At the same time, the use of a voting trust, in the context of the impending control application, would

raise risks that threaten to undermine the public interests the Board considers under 49 U.S.C. (section) 11324 and the RTP. These risks can be avoided, without preventing Applicants from continuing to seek approval for their merger plans, by not allowing the acquisition to take place until regulatory review of the transaction -- the first to be considered under the Board's current major merger regulations -- is complete."

The STB decision also comes after President Joe Biden's executive order in July that called on agencies to examine issues with the lack of competition. The president's order specifically pointed to railroads, noting there were 33 Class I railroads in 1980, but only seven now, and four of those are the dominant rail companies in specific regions of the country.

Stay tuned. This saga is likely not over yet.

Here is a link to the 33-page full decision: https://prod.stb.gov/…

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow her on Twitter @MaryCKenn

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