Key Notes:

  • STB seeks comments on CPRL voting trust structure.
  • Comments due April 8.
  • CPRL reply due April 13.

The Surface Transportation Board (STB) has invited public comments on the voting trust structure proposed by Canadian Pacific Railway Limited (CPRL), the holding company parent of Canadian Pacific Railway Company (CP), that would apply to a possible merger of CP with Norfolk Southern Railway Company (NS). The purpose of this voting trust would be to enable CPRL to acquire ownership, but not control, of NS while seeking regulatory approval of the proposed merger, since a single entity cannot control two railroads without STB authority. CPRL has asked for guidance on its proposed voting trust structure in a Petition for Declaratory Order (Petition) filed with the STB on March 2, 2016. CPRL has not filed an actual voting trust agreement for approval at this time.

In its Petition, CPRL asked the STB to address two questions:

  • Can CPRL place CP in the voting trust, instead of NS, to avoid CPRL’s unlawful control of both CP and NS?
  • Can CP’s chief executive officer terminate his position at CP and take a similar position at NS pending merger approval?

CPRL also explained that its interest in obtaining an STB order is to alleviate NS’s concerns about the legality and effectiveness of the proposed voting trust arrangement. CPRL is seeking expedited consideration of its Petition, with a decision requested by May 6, due to the potential that NS could hold its annual stockholder meeting as soon as the second week of May.

In its March 10 decision, the STB requested comments on the Petition by April 8. It also stated that CPRL would be permitted to file rebuttal comments by April 13, but did not indicate whether it would issue a decision by May 6 as CPRL requested. The STB has instructed commenters to address the merits of the Petition, as opposed to focusing solely upon the procedural question of whether the STB even should consider the Petition at all.

CPRL’s proposal to merge CP with NS has generated a great deal of interest in the transportation industry, especially because NS consistently has rebuffed CPRL’s expressions of interest over the past several months. If a merger agreement is reached, an actual voting trust agreement would have to be submitted to the STB for approval, and the merger agreement would be subject to STB review and approval under its merger rules adopted in 2001 that have yet to be applied. Numerous questions surround any STB consideration of a possible CP-NS merger, including whether CPRL would continue to pursue its courtship of NS if the STB rejects CPRL’s proposed voting trust structure, and how the rail industry likely will respond to a CP-NS merger. Many industry stakeholders believe that a successful CP-NS merger, or even just the start of an STB proceeding to consider the merits of one, would cause other Class I railroads to seriously explore their own merger options, leading to a final round of consolidation among North American rail carriers.