The Surface Transportation Board approved the $31 billion acquisition of Kansas City Southern by Canadian Pacific Railway.
Retained by counsel for Canadian Pacific Railway
Railroad companies Canadian Pacific Railway (CP) and Kansas City Southern (KCS) announced their intent to merge in 2021. Counsel for CP retained economic expert Bob Majure of Cornerstone Research.
Based on a comprehensive analysis filed with the Surface Transportation Board (STB), Dr. Majure opined that this vertical merger was likely to create benefits for customers; that the combined railroad could provide single-line service that would be more efficient than their pre-merger interconnection; and that this improved service between Canada, the U.S., and Mexico would increase competition for the larger U.S. railroads serving these corridors, particularly Union Pacific (UP) and BNSF Railway (BNSF).
Shortly before the STB concluded that a merger of CP and KCS could proceed under a voting trust while the agency conducted its statutory review, Canadian National (CN), another large railroad company, submitted a buying offer to KCS shareholders and a proposal to the STB for an alternative CN/KCS merger. KCS shareholders accepted CN’s competing offer. Dr. Majure analyzed that merger proposal, opining to the STB that, due to the railroads’ track infrastructure, a CN/KCS merger would raise significant horizontal merger considerations and that the prospect of anticompetitive consequences should be examined closely. The STB agreed, concluding that the risks to the public interest of this combination were great enough that a thorough review would need to occur before CN could acquire KCS.
CP and KCS then renewed their plan to merge and, with their formal application to the STB in October 2021, they filed a comprehensive analysis by Dr. Majure confirming that a CP/KCS merger was not likely to have any adverse effects on competition. In February 2022, competitor railroads UP and BNSF responded that they could be harmed by the merger and proposed some remedies to the STB. Dr. Majure rebutted these allegations of vertical merger harm by examining the data and documentary evidence. Dr. Majure also demonstrated that the proposed remedies would effectively tax new single-line service and insulate UP and BNSF from the full effects of the merger’s tendency to promote competition.
Dr. Majure testified at the STB’s hearing on the effects of the CP/KCS merger in September 2022. In March 2023, the STB approved the merger. In the decision to reject the remedies proposed by UP and BNSF, the STB cited Dr. Majure’s opinion.