Canadian Pacific’s Proposed Voting Trust Structure Risks Irreversibly Harming Competition
April 8, 2016 - The Department of Justice filed a reply today in opposition to Canadian Pacific Railway Limited’s (“CPRL”) petition for a declaratory order regarding use of a voting trust pending the Surface Transportation Board’s (“STB”) review of a potential merger between Canadian Pacific Railway Company (“CP”) and Norfolk Southern Railway Company (“NS”).
The reply states that the proposed voting trust would fail to preserve the independence of the merging railroads during the pendency of the transaction’s regulatory review and would risk harm to current and future competition. It urges the STB to reject the proposed voting trust structure or, in the alternative, to deny the request for a declaratory order.
“Canadian Pacific’s voting trust proposal would compromise Norfolk Southern’s independence and effectively combine the two railroads prior to completion of the STB’s review,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division. “That makes no sense. We urge the STB to preserve its ability to review the impact of the proposal on competition and consumers before Canadian Pacific starts scrambling the eggs.”
On March 2, 2016, CPRL, the holding company that owns CP, petitioned the STB for a declaratory order approving a proposed voting trust structure pending the STB’s review of a merger between CP and NS. Under the proposed voting trust structure, CPRL would acquire NS, CP’s stock would be placed in trust, and CP’s current CEO would become CEO of NS. As explained in the filing, this proposed voting trust structure fails under each prong of the STB’s regulatory requirements.
The proposal fails to preserve the independence of NS and CP. In addition, both CP and NS will have the economic incentives and the ability to align their business strategies before a review of the transaction. Finally, the proposal would also make it difficult, if not impossible, to effectuate a successful divestiture if the STB were to reject the merger applications.
The STB is an independent agency. The Administrative Procedure Act provides the STB discretion to issue declaratory orders to terminate a controversy or remove uncertainty.
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