(BRK.A), (BRK.B)
The U.S. railroad consolidation that is slowly chugging down the track with Canadian Pacific’s $28 billion bid to acquire Norfolk Southern will be derailed if two senior Democratic senators have their way.
Peter DeFazio (D-Ore.), the House Transportation and Infrastructure Committee’s ranking member, and Mike Capuano (D-Mass.), the ranking member of the Railroads, Pipelines, and Hazardous Materials Subcommittee, have written a letter to the Surface Transportation Board (STB) asking for the STB to nix any railroad mergers on the ground that it would reduce competition.
In their view, a Canadian Pacific merger with Norfolk Southern would upset the balance of power that currently exists between the seven Class 1 railroads, and would likely lead to another round of consolidations.
If Canadian Pacific and Norfolk Souther tie-up, another possible merger would be BNSF Railway with CSX to create a second railroad that stretches coast-to-coast.
BNSF Railway chairman Matt Rose recently indicated that BNSF is interested in either Norfolk Southern or CSX depending on the outcome of Norfolk Southern’s status.
“I’ve had general conversations with both of them and told them that we’re going to watch this with interest,” Rose recently told Bloomberg News.
However, in their letter to the STB, DeFazio and Capuano stated that they “have significant concerns with CP’s proven track record of boosting profits at the expense of its workforce” and “further consolidation of an already healthy industry is unwarranted.”
It’s an opinion that Norfolk Southern anticipated thanks to Norfolk Southern’s white paper by former Surface Transportation Board commissioners Francis Mulvey and Charles Nottingham, which concluded that, “As simple background, rail carriers cannot assume control of another carrier without prior STB approval. The STB’s approval process can last between 19 and 22 months. Current STB regulations, adopted in 2001, set a high bar for approval of a proposed major merger and related voting trust based on an untested public interest standard. In our expert opinions, the STB is not likely to approve CP’s proposed voting trust or the CP+NS merger.”
Now, as Congress starts to weigh in, it looks all the more doubtful that truly national railroads are in the offing.
© 2016 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.