As Canadian Pacific continues to pursue a merger with Norfolk Southern, CP CEO Hunter Harrison sent a response to the members of the Illinois Congressional delegation (all Democrats) who sent a letter to the Surface Transportation Board on De. 14, 2015 expressing concerns about the potential transaction.
“I was surprised to read this letter in the media as it would have been my pleasure to sit down with you and walk through the benefits of our proposal to Illinois and Chicago and to address concerns, “ Harrison said. “That offer still stands.”
“We recognize that the State of Illinois relies on a strong freight rail industry as does the United States economy,” said Harrison. “We believe that a CP-NS merger would further strengthen our industry and allow us to make better and more efficient use of our assets to provide competitive rail service today and to meet the capacity challenges that we face tomorrow. We look forward to a robust regulatory process at the STB to clearly illustrate with compelling facts and evidence that a CP-NS combination is decidedly in the public interest.
“We have not yet had an opportunity to engage with NS and negotiate the specifics of a combination. That said, we are confident that such a combination would improve the railroad network by delivering a more seamless and robust network, and to do so without engaging in new construction which, in today’s environment, is especially difficult. Over the medium to long term, the strength of the network will be eroded unless we expand or find other innovative ways to grow. If we are unable to grow through merger or through new construction—a near impossible feat in many locations like Chicago—we anticipate that the challenges of the winter of 2013-2014 and the subsequent gridlock that ensued would become more frequent and impactful. “In regard to some of your specific concerns, improving Chicago is a key objective of this transaction and one of the many ways it is in the public interest. You can fully expect that this will be a major component of a compelling case to the STB. If new routings are planned, we will ensure that our submission is transparent on any impact and, we will work with local communities to address specific concerns that arise.
“We believe that the merger would benefit Illinois shippers making them more competitive domestically and internationally. A CP-NS combination would give Illinois shippers efficient single-line service to markets in Canada, the eastern United States and beyond. It should also increase capacity and efficiency in Chicago, allowing shippers to get their goods to market more quickly, reliably and safely, reducing inventory carrying requirements and shipper equipment costs.
“We have proposed innovative competition enhancements such as modified terminal access and an end to the bottleneck pricing approach, which would allow customers to obtain a separately challengeable rate to the customer’s preferred interchange location. For years, shippers have been demanding that Congress and the STB impose these changes as a means to increase rail competition. We would agree to the changes voluntarily as part of the merger consideration.
“Greater efficiency would result in environmental benefits such as reduced fuel consumption. A more-competitive CP-NS would be able to better compete with trucks, [reducing] highway congestion and taxpayer-funded highway maintenance costs. On this point, I would note that the rail infrastructure is privately funded and maintained.
“We understand your concerns regarding the impact on jobs. Be assured that our intent is that reductions in headcount would be achieved through attrition. As demonstrated at the Illinois Central (IC), the Canadian National (CN) and CP, our model seeks to realize greater efficiencies and create a more competitive carrier on a sustainable basis; it is not a ‘cut to the bone’ approach.
“In your letter, you also reference ensuring that the independence of CP and NS is maintained while the STB completes a combination. That is exactly what an independent voting trust does. Voting trusts have long been held to be an effective and lawful means of insulating a carrier from unlawful control pending regulatory approval. They have and continue to be a common and important feature of rail transactions. The denial of the use of a voting trust would interfere with the market place, restricting stockholder's ability to realize the full value of their investment. Such intrusive regulatory action would be contrary to the Staggers Act and longstanding STB precedent.
“In your letter, you express concern regarding the lawfulness of management change at NS. Let me first clarify what is contemplated as there appear to be some misconceptions. CP contemplates that the CP operating entities would be placed in an irrevocable voting trust under an independent trustee. I would sever ties with CP and be hired as CEO at the newly acquired NS. Pending regulatory approval of the combination, CP and NS would continue to operate as independent carriers and vigorous competitors. Neither I nor the CP holding company would exercise any control over the carrier in trust. At NS, my sole objective would be to make NS a stronger, more efficient and more competitive railroad, consistent with my record at IC, CN and CP. What we are proposing is not new. It is similar to the CN-IC transaction, where I resigned my position at IC, which was put in trust, and moved to CN to begin making operational improvements prior to regulatory approval.
“I trust [this] letter helps clarify some of the concerns you expressed in your letter to the STB. Again, I would welcome an opportunity to sit down and discuss our proposal, how it is in the public interest and how it will allow us to collectively meet the challenge of providing a more robust, resilient and competitive rail system that has been called for by many over the past few years.”