CN (TSX: CNR) (NYSE: CNI) and Kansas City Southern (NYSE: KSU)
(“KCS”) today announced that Dr. William Huneke, the former
Director of the Office of Economics and Chief Economist at the
Surface Transportation Board (“STB”) has written an op-ed, which
was published by Railway Age. In the op-ed, Huneke emphasizes the
pro-competitive benefits of a CN/KCS combination, resulting from
the companies’ commitment to keep gateways open on commercially
reasonable terms. Huneke also points out that, for these benefits
to be realized, the CN voting trust must be approved by the STB.
The full text of the op-ed can be found below:
CN Open Gateways Offer Means New, Enhanced
Rail-To-Rail Competition, but STB Must First Approve the CN/KCS
Voting Trust
Written by Dr. William Huneke
Canadian National Railway Company’s (CN)
offer to keep gateways open on commercially reasonable terms is not
getting the attention that it is due. This offer is a key part of
its proposal to combine with Kansas City Southern (KCS)—a
transaction which significantly enhances competition.
CN’s open gateways offer is a big deal. It
means new, enhanced rail-to-rail competition. But for this to even
be considered, the STB must first approve the CN/KCS voting
trust.
I was STB’s chief economist for 10 years, and
I am surprised by the lack of attention to the open gateways
commitment. This commitment ensures that shippers who today enjoy
competitive joint line routings with either CN or KCS will continue
to have those routings available to them in a post CN/KCS merger
environment, even if a merged CN/KCS could handle the entire
movement via a single-line routing. This means continued
competition and we know that competition encourages lower rates,
better service and innovation.
The commitment is not just about maintaining
physical routings, but also about ensuring that the routings are
commercially reasonable to the shipper. What is meant by “open on
commercially reasonable terms”? This means all market participants,
railroads and shippers will benefit: they will get a fair chance to
compete. They will pay and receive remunerative rates and get
efficient service. If a shipper is not happy with their service,
they can switch to another carrier because they will still have a
choice.
A CN/KCS combination will create a strong new
rail-to-rail competitor that will provide new single-line rail
movements in competition with other rail carriers. In addition,
with the gateway commitment, shippers will also have the option to
use an existing routing or other routings involving more than just
the merged CN/KCS.
Single-line hauls have long been a strong
benefit of rail mergers because they are more efficient, eliminate
costly and time-consuming handlings, and often create better
routes. In the past, there was concern that such new single-line
combinations might result in closing such gateways and preventing
shippers from using routes involving multiple railroads. This is
why CN-KCS’s offer to protect existing gateways commercially is a
gamechanger.
The STB (and its predecessor, the Interstate
Commerce Commission) used to impose rigid gateway protection in
order to protect a shipper from losing alternative service in a
rail merger. For more than three decades the ICC imposed so-called
DT&I conditions. Those conditions required the merged railroad
to preserve the gateway and “to maintain and keep open all routes
and channels of trade via existing junctions and gateways” between
it and another railroad that connected at that gateway. It also
imposed a “rate equalization” condition, which froze rates.
In other words, in addition to the
single-line service that the merged railroad could offer, the
imposition of the DT&I conditions kept another option in play
because the merged railroad could move the freight to the gateway
and hand it off to another road. That multi-railroad move acted as
a competitive constraint to the single-line move of the merged
railroad. That was a good thing.
But the rate equalization requirement
(requiring equal rates to all railroads at a gateway) meant that
the newly merged railroad could not reduce its own rates at the
gateways to reflect its new found single-line efficiencies. This
rate equalization requirement actually inhibited competition by
preventing railroads from adapting to ever changing market
conditions or to reduce rates depending upon the route so as to
respond to the increased competition by other modes. As such, the
ICC abandoned the DT&I gateway conditions and stopped imposing
them. It realized that the onerous “rate equalization” feature of
that condition prevented rather than enhanced competition.
CN’s gateway commitment is intended to
preserve the commendable parts of the DT&I conditions, which
were intended to preserve shippers’ choices, but without the
anticompetitive elements of rate equalization. Keeping gateways
open on commercially reasonable terms will enhance competition by
supplementing the benefits of new single line routes, with the
opportunity for customers to access other railroads at gateways
affected by a merger. The commitment avoids the anti-competitive
“rate equalization” features that doomed the prior approach in
favor of one that favors flexibility, customer choice, and enhanced
competition.
Besides keeping gateways open, CN and KCS
have also committed to divest KCS’s 70 mile parallel rail line to
CN’s rail line between Baton Rouge and New Orleans to address the
minimal competitive overlap between the two networks. This too is
commendable.
As a result of both the divestiture
commitment in Louisiana and the gateway protection commitment, the
result is a combined CN-KCS network with no competitive overlaps,
commercially open gateways, and a stronger railroad able to offer
new and vibrant single-line service to compete rail-to-rail with
other Class I’s, especially the two dominant western railroad
carriers: Union Pacific and BNSF. The merger thus allows CN/KCS,
UP, and BNSF to compete across major U.S. rail gateways that
include Kansas City, Chicago, New Orleans, St. Louis, and Memphis.
These are the central hubs of U.S. rail commerce.
The CN-KCS merger—with its divestiture
commitment and its offer to protect gateways commercially—is a huge
step forward for competition. But shippers will not be able to
avail themselves of either the new single-line efficiencies or the
gateway commitment if the CN-KCS merger is never allowed to be
considered by the STB in the first place.
For the merger to even be considered, the STB
must first approve the use of a voting trust. That is why I am
supporting CN’s proposal to use a voting trust and urge shippers
and other interested parties to do so as well. Without the voting
trust, shippers will not benefit from the pro-competitive
commitments made by CN and KCS, squandering the unique opportunity
to enhance competition through the gateway commitment. I support
this new, enhanced competition in the rail sector and ask others to
do so as well.
Dr. Huneke is former Director of the Office
of Economics and Chief Economist at the Surface Transportation
Board. He is now a consulting economist and provides economic
advice to private sector clients. He has provided testimony and
litigation advice to Class I Railroads, including to KCS, and to
the American Short Line and Regional Railroads Association.
For more information on CN’s pro-competitive combination with
KCS, please visit www.ConnectedContinent.com.
About CN
CN is a world-class transportation leader and trade-enabler.
Essential to the economy, to the customers, and to the communities
it serves, CN safely transports more than 300 million tons of
natural resources, manufactured products, and finished goods
throughout North America every year. As the only railroad
connecting Canada’s Eastern and Western coasts with the U.S. South
through a 19,500-mile rail network, CN and its affiliates have been
contributing to community prosperity and sustainable trade since
1919. CN is committed to programs supporting social responsibility
and environmental stewardship.
About Kansas City Southern
Headquartered in Kansas City, Mo., Kansas City Southern (KCS)
(NYSE: KSU) is a transportation holding company that has railroad
investments in the U.S., Mexico and Panama. Its primary U.S.
holding is The Kansas City Southern Railway Company, serving the
central and south central U.S. Its international holdings include
Kansas City Southern de Mexico, S.A. de C.V., serving northeastern
and central Mexico and the port cities of Lázaro Cárdenas, Tampico
and Veracruz, and a 50 percent interest in Panama Canal Railway
Company, providing ocean-to-ocean freight and passenger service
along the Panama Canal. KCS' North American rail holdings and
strategic alliances with other North American rail partners are
primary components of a unique railway system, linking the
commercial and industrial centers of the U.S., Mexico and Canada.
More information about KCS can be found at www.kcsouthern.com
Forward Looking Statements
Certain statements included in this news release constitute
“forward-looking statements” within the meaning of the United
States Private Securities Litigation Reform Act of 1995 and under
Canadian securities laws, including statements based on
management’s assessment and assumptions and publicly available
information with respect to KCS, regarding the proposed transaction
between CN and KCS, the expected benefits of the proposed
transaction and future opportunities for the combined company. By
their nature, forward-looking statements involve risks,
uncertainties and assumptions. CN cautions that its assumptions may
not materialize and that current economic conditions render such
assumptions, although reasonable at the time they were made,
subject to greater uncertainty. Forward-looking statements may be
identified by the use of terminology such as “believes,” “expects,”
“anticipates,” “assumes,” “outlook,” “plans,” “targets,” or other
similar words.
Forward-looking statements are not guarantees of future
performance and involve risks, uncertainties and other factors
which may cause actual results, performance or achievements of CN,
or the combined company, to be materially different from the
outlook or any future results, performance or achievements implied
by such statements. Accordingly, readers are advised not to place
undue reliance on forward-looking statements. Important risk
factors that could affect the forward-looking statements in this
news release include, but are not limited to: the outcome of the
proposed transaction between CN and KCS; the parties’ ability to
consummate the proposed transaction; the conditions to the
completion of the proposed transaction; that the regulatory
approvals required for the proposed transaction may not be obtained
on the terms expected or on the anticipated schedule or at all;
CN’s indebtedness, including the substantial indebtedness CN
expects to incur and assume in connection with the proposed
transaction and the need to generate sufficient cash flows to
service and repay such debt; CN’s ability to meet expectations
regarding the timing, completion and accounting and tax treatments
of the proposed transaction; the possibility that CN may be unable
to achieve expected synergies and operating efficiencies within the
expected time-frames or at all and to successfully integrate KCS’
operations with those of CN; that such integration may be more
difficult, time-consuming or costly than expected; that operating
costs, customer loss and business disruption (including, without
limitation, difficulties in maintaining relationships with
employees, customers or suppliers) may be greater than expected
following the proposed transaction or the public announcement of
the proposed transaction; the retention of certain key employees of
KCS may be difficult; the duration and effects of the COVID-19
pandemic, general economic and business conditions, particularly in
the context of the COVID-19 pandemic; industry competition;
inflation, currency and interest rate fluctuations; changes in fuel
prices; legislative and/or regulatory developments; compliance with
environmental laws and regulations; actions by regulators; the
adverse impact of any termination or revocation by the Mexican
government of KCS de México, S.A. de C.V.’s Concession; increases
in maintenance and operating costs; security threats; reliance on
technology and related cybersecurity risk; trade restrictions or
other changes to international trade arrangements; transportation
of hazardous materials; various events which could disrupt
operations, including illegal blockades of rail networks, and
natural events such as severe weather, droughts, fires, floods and
earthquakes; climate change; labor negotiations and disruptions;
environmental claims; uncertainties of investigations, proceedings
or other types of claims and litigation; risks and liabilities
arising from derailments; timing and completion of capital
programs; and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the United
States. Reference should also be made to Management’s Discussion
and Analysis in CN’s annual and interim reports, Annual Information
Form and Form 40-F, filed with Canadian and U.S. securities
regulators and available on CN’s website, for a description of
major risk factors relating to CN. Additional risks that may affect
KCS’ results of operations appear in Part I, Item 1A “Risks Related
to KCS’s Operations and Business” of KCS’ Annual Report on Form
10-K for the year ended December 31, 2020, and in KCS’ other
filings with the U.S. Securities and Exchange Commission
(“SEC”).
Forward-looking statements reflect information as of the date on
which they are made. CN assumes no obligation to update or revise
forward-looking statements to reflect future events, changes in
circumstances, or changes in beliefs, unless required by applicable
securities laws. In the event CN does update any forward-looking
statement, no inference should be made that CN will make additional
updates with respect to that statement, related matters, or any
other forward-looking statement.
No Offer or Solicitation
This news release does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offer of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended.
Additional Information and Where to Find It
In connection with the proposed transaction, CN will file with
the SEC a registration statement on Form F-4 to register the shares
to be issued in connection with the proposed transaction. The
registration statement will include a preliminary proxy statement
of KCS which, when finalized, will be sent to the stockholders of
KCS seeking their approval of the merger-related proposals. This
news release is not a substitute for the proxy statement or
registration statement or other document CN and/or KCS may file
with the SEC or applicable securities regulators in Canada in
connection with the proposed transaction.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY
STATEMENT(S), REGISTRATION STATEMENT(S), TENDER OFFER STATEMENT,
PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC OR
APPLICABLE SECURITIES REGULATORS IN CANADA CAREFULLY IN THEIR
ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT CN, KCS AND THE PROPOSED
TRANSACTIONS. Any definitive proxy statement(s), registration
statement or prospectus(es) and other documents filed by CN and KCS
(if and when available) will be mailed to stockholders of CN and/or
KCS, as applicable. Investors and security holders will be able to
obtain copies of these documents (if and when available) and other
documents filed with the SEC and applicable securities regulators
in Canada by CN free of charge through at www.sec.gov and
www.sedar.com. Copies of the documents filed by CN (if and when
available) will also be made available free of charge by accessing
CN’s website at www.CN.ca. Copies of the documents filed by KCS (if
and when available) will also be made available free of charge at
www.investors.kcsouthern.com, upon written request delivered to KCS
at 427 West 12th Street, Kansas City, Missouri 64105, Attention:
Corporate Secretary, or by calling KCS’s Corporate Secretary’s
Office by telephone at 1-888-800-3690 or by email at
corpsec@kcsouthern.com.
Participants
This news release is neither a solicitation of a proxy nor a
substitute for any proxy statement or other filings that may be
made with the SEC and applicable securities regulators in Canada.
Nonetheless, CN, KCS, and certain of their directors and executive
officers and other members of management and employees may be
deemed to be participants in the solicitation of proxies in respect
of the proposed transactions. Information about CN’s executive
officers and directors is available in its 2021 Management
Information Circular, dated March 9, 2021, as well as its 2020
Annual Report on Form 40-F filed with the SEC on February 1, 2021,
in each case available on its website at www.CN.ca/investors/ and
at www.sec.gov and www.sedar.com. Information about KCS’ directors
and executive officers may be found on its website at
www.kcsouthern.com and in its 2020 Annual Report on Form 10-K filed
with the SEC on January 29, 2021, available at
www.investors.kcsouthern.com and www.sec.gov. Additional
information regarding the interests of such potential participants
will be included in one or more registration statements, proxy
statements, tender offer statements or other documents filed with
the SEC and applicable securities regulators in Canada if and when
they become available. These documents (if and when available) may
be obtained free of charge from the SEC’s website at www.sec.gov
and from www.sedar.com, as applicable.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210622006048/en/
Media: CN Canada
Mathieu Gaudreault CN Media Relations & Public Affairs (514)
249-4735 Mathieu.Gaudreault@cn.ca
Longview Communications & Public Affairs Martin Cej (403)
512-5730 mcej@longviewcomms.ca
United States Brunswick Group Jonathan Doorley / Rebecca
Kral (917) 459-0419 / (917) 818-9002 jdoorley@brunswickgroup.com
rkral@brunswickgroup.com
Media: KCS C. Doniele
Carlson KCS Corporate Communications & Community Affairs (816)
983-1372 dcarlson@kcsouthern.com
Joele Frank, Wilkinson Brimmer Katcher Tim Lynch / Ed Trissel
(212) 355-4449
Investment Community: CN
Paul Butcher Vice-President Investor Relations (514) 399-0052
investor.relations@cn.ca
Investment Community: KCS
Ashley Thorne Vice President Investor Relations (816) 983-1530
athorne@kcsouthern.com
MacKenzie Partners, Inc. Dan Burch / Laurie Connell (212)
929-5748 / (212) 378-7071
Canadian National Railway (TSX:CNR)
Historical Stock Chart
Von Mär 2024 bis Apr 2024
Canadian National Railway (TSX:CNR)
Historical Stock Chart
Von Apr 2023 bis Apr 2024