Hearing set on rail mergers

WASHINGTON -- In the wake of the proposed Canadian National (CN) Railway merger with Burlington Northern Santa Fe Corp. (BNSF), the Surface Transportation Board (STB) is holding an unprecedented four-day public hearing beginning March 7 on consolidation of the North American railroad industry.

Never before has any announced railroad merger met with so much early opposition. More than 160 witnesses have asked to participate in the hearing, including other Class I railroads, shippers, and unions. The UTU, which is the only rail-transportation union to announce its opposition to the merger, will present testimony.

Opposition is also mounting in Canada, where UTU Canadian Legislative Director Tim Secord has asked that hearings be held on the proposed merger. "We have asked the Canadian government to actively look at the repercussions of the merger and how it will affect our members," Secord said.

The co-chairman of an important Canadian parliamentary committee studying the planned CN/BNSF merger said that, despite comments by CN's CEO Paul Tellier, the deal is not a fait accompli. Winnipeg South member of Parliament Reg Alcock said that his committee will give the deal a lengthy examination and will recommend legislation to block the deal if he sees fit.

Alcock said he was concerned about recent statements Tellier made that suggested the deal was as good as approved. Said Alcock, "These rails run under Transport [Canada] legislation that's passed by [the House of Commons]. That company [CN] acts under a mandate granted by this House. To suggest the government of Canada is powerless in this is silly."

NO LEGISLATIVE ROADBLOCKS
Tellier, a former clerk of the Privy Council, the highest bureaucratic position in the country, said he had assurances from Transport Canada that there would be no legislative roadblocks to scuttle the deal. Alcock called Mr. Tellier's comments "arrogant" and said they reflect the "cozy relationship between CN and the department."

In the U.S., CN and BNSF have asked that the STB handle their merger application in 365 days. The two railroads filed a petition with the STB proposing the 365-day schedule for the agency's review. They told the board that their application will be filed as soon as practicable after March 20.

In scheduling the March 8 hearing, the STB noted that it did not intend to prejudge the as-yet-unfiled BNSF/CN merger application, but would provide a forum for discussion of broader matters that have arisen since the merger was proposed last month.

Speculation has been rife since the announcement that the CN/BNSF deal, if approved, would lead to another round of consolidation, ultimately resulting in just two North American transcontinental railroad systems.

EXPLORE ALL OPTIONS
Cong. Bud Shuster (R-Pa.), chairman of the House Committee on Transportation and Infrastructure, and Cong. James Oberstar (D-Minn.), the committee's ranking Democrat, wrote the STB, urging it to "promptly explore all options to ensure an early and vigorous debate" on whether the "downstream" effects of the proposed BNSF/CN transaction are in the public interest.

The STB said it wanted to hear from all interested persons about their concerns over the BNSF/CN deal's potential for sparking further consolidation, and about the way the industry is regulated. It also invited interested parties to address whether these developments would be good for large and small railroads and their shippers.

The Interstate Commerce Commission Termination Act, the law that created the STB, gives the agency 15 months to reach a decision from the time the application is filed.

It is also within the STB's rights to extend the proposed schedule. Indeed, other railroads and some shippers are likely to seek an extended schedule, and lawyers who are experts in the field say the agency can waive the 15-month requirement.

The proposed schedule, which is substantially longer than the schedules adopted for some recent STB merger proceedings, anticipates a full discussion of all issues relevant to the BNSF/CN transaction, including its cumulative and any potential crossover effects on the North American rail industry, the companies said in a statement.

MERGER TIMETABLES
The Interstate Commerce Commission handled the merger between Burlington Northern Railroad and Atchison, Topeka and Santa Fe Railway ­ which created BNSF in 1995 ­ in seven months, but that came after a four-month suspension in processing the application while BN and Union Pacific Railroad fought for control of Santa Fe.

The STB took just eight months to approve UP's acquisition of Southern Pacific Rail Corp. in 1995-96.

The division of Conrail property and operations following the joint purchase of the Northeastern rail system by Norfolk Southern Corp. and CSX Corp. took the STB 13 months, following an additional month while the two carriers submitted plans to deal with safety issues.

Unsure that they can successfully block the BNSF/CN combination on its merits, opposing shippers and other major railroads have indicated in recent weeks that they will seek to delay the proceeding as long as possible.

While Ottawa currently has no legislation in place that allows it to review such rail mergers, sources have previously told The Toronto Globe and Mail that legislation aimed specifically at the proposed merger of CN and BNSF is being contemplated. The Canadian Transportation Act is due for its five-year revision this summer, and the source said the proposed amendments would give the federal government the power to review and possibly prevent deals such as the CN/BNSF merger.

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