Regional Interests Take Sides In Kansas City Southern Merger Fight

The debate over which Canadian railway would provide greater benefits to stakeholders through a merger with Kansas City Southern KSU appears to be pitting regions of the U.S. against each other, based on Monday releases from both railways.

Canadian Pacific CP says it has support from North Dakota congressional leaders as well as from a number of Upper Midwest grain shippers, while CN CNI says it has backing from state and federal leaders from the Gulf Coast and southern Plains states.

Both CN and CP want to merge with Kansas City Southern (KCS), but they need regulators' approval for that to happen.

KCS and CN agreed to merge in May, resulting in KCS disentangling itself from earlier plans to merge with CP. But CP has said it is still interested in acquiring KCS if the CN-KCS merger falls through.

The Surface Transportation Board (STB), which will review either rail merger, is accepting comments through Monday on whether it should grant CN's request for a voting trust. CN and KCS say they need the voting trust in order for their merger proceedings to continue.

CN and CP will then have until July 6 to respond to the comments that STB received.

Both CP and CN say a merger will result in a transcontinental railroad that consists of a network spanning from Canada through the U.S. and into Mexico.

Canadian Pacific touts backing of North Dakota delegation

All members of the North Dakota congressional delegation support a merger between CP and KCS.

The Republican delegation, which consists of Sens. John Hoeven and Kevin Cramer and Rep. Kelly Armstrong, sent a joint letter to STB in support of a CP-KCS merger, according to CP.

According to their letter, provided by CP, the North Dakota delegation sees a CP-KCS merger as providing shippers with access to new markets in the southern U.S. and in Mexico.

North Dakota producers have access to Asia via the ports in the Pacific Northwest through two Class I railroads: CP and BNSF (NYSE: BRK-B).

"As a state rich with natural resources, including agricultural products, crude oil, and others, producers in our state rely on freight transportation to move their products to market. … A KCS/CP merger would create the first Class I railroad with track in Canada, Mexico, and the United States, opening access to new markets for our State's producers in Mexico, while also providing a more direct route to markets in the Southern United States," the letter said.

"This in turn would increase competition and help our agricultural producers continue to provide the highest quality, lowest cost food supply in the world, while also contributing to our nation's energy independence," the letter continued.

The letter also said the CP-KCS merger would ensure competition because the combined railroad would still be the smallest of the Class I carriers operating in the U.S.

CN wins support in Gulf Coast, Southern Plains states

Meanwhile, CN said it has sent 196 additional letters supporting the merger or the voting trust to STB. That brings the total to over 1,650, according to CN.

Among those nearly 200 letters is one from Rep. Sam Graves of Missouri, who is also the ranking Republican member of the U.S. House Committee on Transportation and Infrastructure.

According to quotations provided by CN, Graves' letter says, "CN/KCS trust should meet the unlawful control test, and also meet the public interest financial test. … KCS is well established and well respected within the Kansas City area and merging with CN will create new opportunities for trade and economic growth in the metro area and beyond. From a national and international perspective, the CN/KCS merger has the potential to improve commerce and access to markets by creating a single railroad that will streamline the movement of goods among Canada, the United States, and Mexico."

According to CN, the CN-KCS merger is also garnering support from Baton Rouge Democratic Mayor Sharon Weston Broome, Louisiana Democratic Gov. John Bel Edwards and the Port of New Orleans. Others who are supporting the merger include Republican Missouri Gov. Mike Parson, and U.S. Reps. Emanuel Cleaver, D-Mo., Sharice Davids, D-Kan., Henry Cuellar D-Texas, and Trent Kelly, R-Miss., CN said.

In a separate release on Monday, CN also said the CK-KCS merger has support from three local unions affiliated with the Brotherhood of Locomotive Engineers and Trainmen. The local groups filed four letters of support with STB, according to CN. Collectively, the three local unions represent more than 1,700 locomotive engineers on CN's U.S. subsidiaries and approximately 200 KCS engineers, CN said.

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