Regulator Says Call on CP, Norfolk Could Take 18 Months
November 20 2015 - 5:20PM
Dow Jones News
The decision of whether to clear the combination of Canadian
Pacific Railway Ltd. and Norfolk Southern Corp.'s railroads could
take about 18 months and would likely be subject to an appeal
before a final decision is reached, according to a key U.S.
rail-industry regulator.
Daniel R. Elliott, chairman of the U.S. Surface Transportation
Board, said the merger of the two railroads, which would be subject
to his board's approval, would be "very complex." If it gets to
that stage, he said while speaking at Rail Trends, an annual
rail-industry conference in New York City on Friday, "there will be
a lot to consider."
Mr. Elliott's comments follow CP's public proposal this week to
acquire Norfolk Southern for more than $28 billion as it aims to
create a North American rail network that stretches from Canada's
West Coast to the Gulf of Mexico and Atlantic Ocean. Any deal would
need to satisfy the STB's merger rules, a potentially tough sell in
the first major test of requirements established by the agency in
2001 mandating that deals enhance competition.
Regulators would take under consideration the possibility that
such a big merger might spark further rail-industry consolidation
as they determine whether or not it would be in the public's
interest, Mr. Elliott said.
Three to six months before a railroad can begin its
merger-approval process with the STB, the applicant must submit a
pre-filing notification, Mr. Elliott said. The board then has a
month to accept or reject the application. The STB's
evidence-gathering and hearing phase can take a year, after the
conclusion of which the board has 90 days to make a decision on the
merger.
"I'm sure there would be an appeal," Mr. Elliott added, which
would take place in a federal appeals court.
CP on Wednesday released its letter to Norfolk Southern, in
which it said it expected the transaction to close Dec. 31,
2017.
CP made its proposal public after a meeting last week between
the two railroads' chief executives at which CP got a cool
reception, according to a person familiar with the matter.
The two signaled they were far apart on a potential combination,
differing on the value of CP's proposal. CP, in its letter, said a
merger would allow the companies to achieve more than $1 billion in
cost savings, boosting the ultimate value of the deal to as much as
$42.64 billion.
At an investor conference Thursday afternoon, CP CEO Hunter
Harrison said the companies hadn't spoken since the meeting with
his counterpart at Norfolk Southern. "That's been one of the
frustrating issues is it's hard to resolve issues and solve some of
the issues if you don't talk," Mr. Harrison said.
He also indicated that the value of the deal could increase. He
asked for a price, which Norfolk Southern hadn't given at the
meeting, he said. "Is that our final offer line in the sand? No.
And I tried to indicate that to them," he added.
When it comes to gaining regulatory approval, the STB is bound
by its rules, and CP will make a "compelling case," Mr. Harrison
said.
"Now if in their wisdom, if the board says there's some
downstream effects that we've overlooked or missed and they say no,
they say no and we move on," he said.
Write to Betsy Morris at betsy.morris@wsj.com and Laura Stevens
at laura.stevens@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 20, 2015 17:05 ET (22:05 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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