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Editor's note: Updated with comments from CP and KCS.
The Surface Transportation Board today announced it has approved the merger of Canadian Pacific and Kansas City Southern with several conditions.
The combined entity of the two smallest Class Is will be known as Canadian Pacific Kansas City (CPKC) and will be the smallest of the Class Is. The merger creates the first railroad providing single-line service spanning Canada, the United States and Mexico.
"Among many other single-line options, the new direct service will facilitate the flow of grain from the Midwest to the Gulf Coast and Mexico, the movement of intermodal goods between Dallas and Chicago, and the trade in automotive parts, finished vehicles and other containerized mixed goods between the United States and Mexico," the board noted in its decision.
The STB’s decision takes effect on April 14. Petitions for reconsideration of the decision must be filed by April 4 and requests for a stay must be filed by March 27.
The board expects the new single-line service to foster rail traffic growth, diverting about 64,000 truckloads annually, and support investments in infrastructure, service quality and safety.
"The transaction is also expected to drive employment growth across the CPKC system, adding over 800 new union-represented operating positions in the United States," the decision states.
In addition, STB members believe the merger will foster new Amtrak passenger-rail opportunities, as CPKC has committed to support Amtrak's plan for expanded service on new lines.
"These commitments, along with CP's strong record as an Amtrak host railroad, have won Amtrak's endorsement of the merger," the decision states.
The merger is an "end-to-end" transaction, meaning there are little to no track redundancies or overlapping routes, the board said.
In acknowledging such mergers can pose competitive risks, the STB will impose numerous conditions designed to protect competition.
"The board establishes a detailed obligation to keep gateways — that is, connection points between the CPKC system and other railroads — open on commercially reasonable terms, thereby preserving efficient routing options via other railroads that were available to shippers before the merger," the decision states.
Among the conditions: the board will establish what it characterizes as an "unprecedented" seven-year oversight period of the merged entity, along with extensive data-reporting requirements, to monitor whether CPKC is preserving efficient interline options for shippers at protected gateways.
Some rail industry constituents believe there's too much consolidation among Class Is, STB members acknowledge.
"Regardless of which side one takes in that debate, the board is charged by Congress with reviewing the proposed merger in light of the state of the industry as it actually exists," the decision states. "Given the current realities and the limited opportunities to provide meaningful competition for the largest Class I railroads, as outlined above and discussed at length in this decision, the board concludes that this transaction should improve rather than degrade the performance of the industry. It is for these reasons that the board approves the merger."
The decision authorizes CP to exercise control of KCS as early as April 14 at or after which point CP and KCS would combine to create the new CPKC, CP and KCS officials said in a joint press release.
CP is reviewing the full 212-page decision in detail and in the coming days will announce its plans with respect to the creation of CPKC.
"This decision clearly recognizes the many benefits of this historic combination," said CP President and CEO Keith Creel. "As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network, and drive economic growth."
CPKC will connect North America through a rail network able to enhance competition, provide improved reliable rail service, take trucks off public roads and improve rail safety, Creel said.
Added KCS President and CEO Patrick Ottensmeyer: "This important milestone is the catalyst for realizing the benefits of a North American railroad for all of our stakeholders. [Our board] and management team are very proud of the many contributions and achievements of the people who have made KCS what it is today and we are excited for the boundless possibilities as we move forward into the next chapter as CPKC."