Seed World

CP Rail Purchase of Kansas City Southern Approved

The purchase of Kansas City Southern Railway Company by Canadian Pacific Railway Limited has been approved by the United States Surface Transportation Board (STB) with conditions, a March 15 decision posted online said.

The decision includes an unprecedented seven-year oversight period and contains many conditions designed to mitigate environmental impacts, preserve competition, protect railroad workers, and promote efficient passenger rail. The released noted the STB anticipates the merger will result in improvements in safety and the reduction of carbon emissions.

“This decision clearly recognizes the many benefits of this historic combination,” Keith Creel, CP president and CEO, said in a release from CP. “As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network, and drive economic growth.”

“This important milestone is the catalyst for realizing the benefits of a North American railroad for all of our stakeholders,” Patrick J. Ottensmeyer, KCS president and CEO said in the release. “The KCS Board of Directors and management team are very proud of the many contributions and achievements of the people who have made KCS what it is today and we are excited for the boundless possibilities as we move forward into the next chapter as CPKC.”

CP and KCS filed their merger application with STB on Oct. 29, 2021. Since then the STB has received nearly 2,000 comments and other filings and held a seven-day public hearing. The STB’s Office of Environmental Analysis held seven public meetings and conducted a rigorous analysis, producing a comprehensive Final Environmental Impact Statement of more than 5,000 pages including appendices, the decision said.

CP completed its US$31 billion acquisition of KCS on Dec. 14, 2021, the release said. All shares of KCS were placed into a voting trust with Dave Starling, former KCS President and CEO, appointed as the trustee, immediately following the acquisition closure. Upon Starling’s death, Ronald L. Batory was appointed as successor trustee with the STB’s approval. The Voting Trust has ensured that KCS operated independently of CP during the regulatory review process, and until CP exercises control pursuant to the STB decision, CP and KCS will continue to operate independently, the release noted.

The decision noted that overall the STB expects the merger and imposed conditions to result in a public benefit. The combination of the two railroads which will be known as Canadian Pacific Kansas City (CPKC) will create the first railroad providing single-line service spanning Canada, the U.S., and Mexico. It will reduce travel time for traffic moving over the single-line service; it should result in increased incentives for investment; and will eliminate the need for the two now-separate CP and KCS systems to interchange traffic moving from one system to the other.

“These benefits are unparalleled for our employees, rail customers, communities and the North American economy at a time when the supply chains of these three great nations have never needed it more,” Creel said. “A combined CPKC will connect North America through a unique rail network able to enhance competition, provide improved reliable rail service, take trucks off public roads and improve rail safety by expanding CP’s industry-leading safety practices.”

In a release from the U.S. Wheat Associates (USW) and the National Association of Wheat Growers the group shared its disappointment that approval for the sale had passed. In public comments submitted to the STB on the proposed sale USW said the market power held by the Class I railroads has serious implications for U.S. wheat’s competitiveness compared to other major exporters. NAWG shared similar public comments with the STB.

“U.S. rail industry consolidation has led to poorer, not improved, service for agricultural shippers,” Vince Peterson, USW president said in the release. “In addition, we see extreme disparity in rates for wheat shippers. Rail rates over the last decade have increased exponentially and rates for wheat are higher than rates for other commodities even with similar handling characteristics. Those higher rates make U.S. wheat less competitive in the global market at a time when higher prices already hurt our competitiveness.”

The decision authorizes CP to take control of KCS as early as April 14, 2023, at or after which point CP and KCS would combine to create the new CPKC. The new railway will be headquartered in Calgary, Alta. with the full integration of CP and KCS expected to happen over the next three years. The CP release noted CP is reviewing the full 212-page decision in detail and will announce its plans for the creation of CPKC in the coming days.