Canadian Pacific Railway Ltd.’s bid to acquire Norfolk Southern Corp. faces another obstacle as the top two members of a U.S. Senate subcommittee for antitrust matters are raising concerns about the deal.
Sens. Mike Lee (R., Utah) and Amy Klobuchar (D., Minn.) sent a letter to the U.S. attorney general’s office Friday about a voting-trust plan involving Canadian Pacific’s chief executive. In the letter, the senators say the trust proposed by Canadian Pacific could limit railroad regulators’ ability to “protect competition and the public interest.”
Canadian Pacific declined to comment on the letter. Its chief executive, Hunter Harrison, said this week the company remains committed to its roughly $30 billion bid to acquire Norfolk Southern. Norfolk Southern has rebuffed the cash-and-stock bid, citing regulatory concerns and arguing the offer is too low. The offer was made public last November.
The letter is addressed to Assistant Attorney General William Baer of the Justice Department’s antitrust division, whom the senators are asking to assist in evaluating the voting trust. It was sent after Canadian Pacific on Wednesday said it had petitioned the U.S. Surface Transportation Board, whose approval is required for rail mergers, for an order declaring that the voting-trust structure is acceptable.
The voting-trust plan calls for Mr. Harrison to sell his shares in Canadian Pacific and take the reins at Norfolk Southern. Canadian Pacific would be run by its chief operating officer, Keith Creel.
Canadian Pacific is trying to provide Norfolk Southern shareholders with a sense of how the Surface Transportation Board views the voting trust. It recently submitted a resolution to Norfolk Southern investors to compel the Virginia-based railway to meet with Canadian Pacific and discuss a transaction. The resolution would be voted on at Norfolk Southern’s annual meeting, which is typically held in May.
In their letter, Sens. Lee and Klobuchar write that the voting trust could allow Mr. Harrison to “implement a commercial strategy at Norfolk Southern different from that envisioned by the current Norfolk Southern management.” The senators point to the Hart-Scott-Rodino Act and say merging companies can’t integrate or coordinate at all before completion of an antitrust review.
They also say that the Surface Transportation Board would benefit from Mr. Baer’s experience in evaluating antitrust issues, such as whether the voting trust if declared acceptable would allow Mr. Harrison to coordinate with Canadian Pacific or begin integrating the companies before the deal has received regulatory approval.
“We have serious concerns that the voting trust Canadian Pacific plans to implement as part of its proposed acquisition of Norfolk Southern will limit the ability of the STB to protect competition,” wrote Sens. Lee and Klobuchar, who lead the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights.
In addition to Sens. Lee and Klobuchar, railroad competitors and companies like FedEx Corp. and United Parcel Service Inc. have raised concerns about the proposed merger. FedEx told the Surface Transportation Board in a letter last month that the merger could raise shipping costs and lead to fewer services.
“Such an erosion of competition would ultimately adversely impact the American consumer and our still somewhat fragile economy,’’ FedEx Freight wrote in a Feb. 25 letter posted on the U.S. regulator’s website.
Other railroads oppose the merger, including CSX Corp., Union Pacific Corp. and BNSF Railway Co. BNSF has said that if the Canadian Pacific-Norfolk Southern combination happens it would likely lead to further consolidation and rail mergers—an issue that the Surface Transportation Board is supposed to evaluate in an effort to prevent there being only two or three transcontinental railroads.In addition to its bid for Norfolk Southern, Canadian Pacific recently revived a $20 billion-plus effort to combine with CSX Corp. The overture was made by Canadian Pacific to CSX in January, according to people familiar with the matter.