STB puts the brakes on BNSF-CN merger

Tellier, Krebs file lawsuits to overturn 15-month moratorium on large rail mergers

Following four days of hearings, the Surface Transportation Board announced on March 17 that it was placing a 15-month moratorium on all rail mergers, effectively halting the proposed Burlington Northern Santa Fe-Canadian National combination for more than a year.

Just hours after the Board issued the ruling, BNSF and CN filed petitions with the STB requesting it overturn the moratorium, and also announced they would go to court to force the STB to overturn its decision. On March 31, BNSF filed a lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit to stay the STB order, and on April 12, CN did the same.

The Brotherhood of Locomotive Engineers endorsed the proposed merger after securing landmark job protections and other benefits for its members.

In placing the 15 month freeze on all rail mergers, the Board stated part of its intent was to prevent another round of large rail mergers that could have occurred in response to the $6 billion BNSF-CN combination, causing instability throughout the industry.

"The Board noted that the railroad industry has consolidated aggressively in recent years, with only six large railroads remaining in the United States and Canada," the Board stated in its March 17 ruling.

"But merger implementation has not typically gone smoothly, and indeed the railroad industry and the shipping public have not yet fully recovered from the service disruptions associated with the previous round of mergers.

"Additionally, the testimony at the hearing confirmed the Board's perception that a BNSF/CN combination would more than likely instigate, in the very near future, responsive mergers involving each of the other four large railroads."

Senators welcomed the moratorium at a hearing of the Senate Commerce subcommittee on surface transportation.

"As the railroads have become larger, the mergers have become more complex and difficult," said Senate Majority Leader Trent Lott (R-MS) in a wire service report. "In the short term, it appears to me that it has drained financial resources from the railroads and... eroded service gains and efficiencies at various points."

CN's President Paul Tellier reacted angrily to the ruling, calling it unlawful and unfair.

"The STB's decision is not only unauthorized by Congress, it is also a de facto amendment... of the STB's regulations, applied retroactively to prevent the filing of the CN/BNSF application and a subsequent decision on the merits by the STB," Tellier said. "The decision's illegality is compounded by its blatant unfairness."

Robert D. Krebs, BNSF chairman and chief executive said: "If Chairwoman Morgan's radical decision stands, the effect would be something unheard of in any industry.

"For a period of 15 months, industry participants will be denied the opportunity to realize service and efficiency improvements that a carefully conceived and well-executed combination can provide shippers, shareholders, employees and the public," Krebs concluded.

The March 17 decision by the board was cheered by other railroads and by many shippers.

"In our view, (the) decision was made in the best interest of the railroad industry," Union Pacific Railroad said in a statement issued shortly after the decision was issued. "The STB decision takes a big step towards stabilizing the industry. UP plans to actively participate in the rule-making proceeding."

Ed Emmett, president of the National Industrial Transportation League, which represents major shippers, said his reaction was one more of disappointment and puzzlement. "This decision appears to have been made more out of confusion, not of purpose."

A former Interstate Commerce Commission member, Emmett said the rule-making could have been carried out simultaneously with consideration of the merger. "The STB is always accused of not taking the side of shippers, and I think the agency and some observers may wrap this in the mantle of a shipper friendly decision, when in fact it was done more because of the other Class 1 railroads," he said.

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