CN To Sell Assets To Ease Kansas City Southern Antitrust Concerns

Canadian National Railway is offering to sell a 70-mile stretch of a Louisiana rail network to defuse antitrust concerns as it seeks regulatory approval for its roughly US$30 billion agreement to merge with Kansas City Southern, reported the Wall Street Journal.

The two railroads jointly filed a motion with the US Surface Transportation Board (STB) Wednesday morning, May 26, seeking approval for a voting trust to acquire Kansas City Southern stock from its shareholders. The STB’s review of the proposed trust is the first of a lengthy two-step regulatory process that requires the regulator to ensure that major railroad mergers are in the public interest and enhance competition.

Canadian National’s main rail lines travel across Canada and south into the US through such major hubs as Chicago, Detroit and New Orleans. Kansas City Southern routes extend from Illinois to Southern Mexico. The two railroads operate nearby routes from Baton Rouge to New Orleans that largely ship chemical products. The railways share some customers on the route region.

“We believe our early commitment to eliminating the minimal rail overlap and to laying out the case for a CN-KCS combination should allow the STB to approve our voting trust,” Canadian National’s Chief Executive Jean-Jacques Ruest said.

Canadian National would sell the Louisiana section owned by Kansas City Southern if its proposed merger is approved by the STB.

There have been no major railroad mergers in the US for two decades after a handful of industry combinations triggered widespread complaints about poor service. Canadian Pacific Railway sought to break the deal gridlock with an agreement in March to merge with Kansas City Southern for about US$25 billion in cash and stock, but it was outbid by its bigger competitor Canadian National earlier this month. The STB’s review of the Canadian National and Kansas City merger is expected to last well into next year.

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