CP files with STB for declaratory order

Canadian Pacific, still in hot pursuit of Norfolk Southern, has filed a petition with the Surface Transportation Board seeking an expedited declaratory order for a proposed voting trust “confirming the viability of the voting trust structure CP has suggested as part of its proposed merger.” CP filed the petition on March 2, 2016.

“Shareholders of both CP and NS have asked that we seek this declaratory order as a means to better understand the STB’s views on the proposed voting trust model ahead of any formal application and we have listened to the owners of our respective companies,” said CP CEO Hunter Harrison. “Since we remain convinced that productive discussions about the potential structure and value of a formal bid must take place face to face we hope this show of good faith is met with an equal demonstration on the part of NS. Earlier this month, CP submitted a resolution to NS shareholders to compel their board of directors to meet with CP to discuss a transaction. NS shareholders can vote on this resolution at the upcoming NS annual meeting. While the declaratory order presents a hypothetical proposed trust—outside the established STB procedure for seeking formal trust approval—CP is hopeful that the STB will be able to offer clarity that will allow shareholders to make an informed decision on CP’s pending resolution.”

“Voting trusts have been used in hundreds of transactions involving regulated industries, including 144 transactions overseen by the STB since deregulation of the rail industry in 1980,” Harrison said. “Trusts, besides protecting against unlawful control violations, are a key means of reducing the risk that the regulatory approval process will either interfere with the marketplace’s assessment of a merger or be used as a tool by management to fend off would be acquirers.”

Several scenarios are possible, according to Railway Age Contributing Editor Frank Wilner:

“STB rules permit replies to petitions for declaratory order within 20 days, unless the STB sets another date. A party can ask for more time, but that requires asking the petitioner (CP in this case) to consent to an extension (which I doubt CP would agree to). However, the STB can, on its own, order an extension of time beyond 20 days. How much beyond is conjecture. If no extension is granted, replies to the CP petition would be due March 22 (20 days from March 2). Thus the STB could, in theory, rule by May 6 as requested by CP—agreeing to a voting trust or denying a voting trust. Another option for the STB is to decline to institute a declaratory proceeding, which would require an explanation by the STB as to why it declined. The STB’s discretion is broad (click HERE for a related article), meaning judicial review of whatever it does is limited and most unlikely.

“Another option for the STB is to decline to institute a proceeding, but provide comments such as, for example, that the law is clear and no declaratory order is needed; or that the law does not permit what CP proposes. The ICC and the STB have never approved such a voting trust arrangement whereby the acquiring railroad is placed in trust (as opposed to the railroad to be acquired) and the CEO of the acquiring railroad departs to become CEO of the railroad to be acquired. Expect NS attorneys to call this a contrivance intended to circumvent the statute. CP may cite the CN-IC example, but it is not the same, as Hunter Harrison left IC to go to CN, and CN was the acquiring railroad.”

A PDF of the petition can be downloaded from the link below.