CN Says New U.S. Rules on Rail Mergers Good for Competition

WASHINGTON -- The U.S. rail watchdog plans to make it harder for the few remaining North American railroads to merge, the National Post reports. Ending a 15-month moratorium that killed a $28-billion takeover by Canadian National Railway Co. of Burlington Northern Santa Fe Corp., the Surface Transportation Board said yesterday it will be demanding to see more proof that major cargo railroads serving the continent would be good for shippers and the public.

"Future merger applications will be required to bear a heavier burden to show that a major rail combination is consistent with the public interest," said Linda Morgan, board chairman, in issuing the new rules.

Montreal-based CN was forced to abandon its planned takeover of Burlington last year when the board, which controls U.S. rail activity, decided to issue its moratorium while it developed rules to deal with the four remaining Class 1 U.S. rail lines -- Union Pacific Corp., Burlington Northern, Norfolk Southern Corp. and CSX Corp.

The board, part of the U.S. Transportation Department, said it plans to judge new mergers on the basis of improved competition, especially now that there is no longer an oversupply of rail cars. In addition, it said it does not want to see a repeat of the problems following the 1996 merger of Union Pacific with Southern Pacific, which cost the U.S. economy US$4-billion.

"On the face of it, this makes mergers more onerous," said David Shuman, managing director of R.L. Banks & Associates, a transportation consulting firm in Washington. "This raises the bar for any railroad that wishes to merge."

CN, which complained to a U.S. federal court about the original March, 2000, moratorium, said it agrees with at least two of the major changes -- one that uses quality of customer service as a key gauge and a second that does not treat foreign railroads any differently.

"If the goal of treating U.S. and foreign-headquartered railroads equally is met in the implementation of the rules, that will help stimulate competition in our industry," said Paul Tellier, CN president.

Mark Hallman, a spokesman for CN, said he could not speculate on whether the rules would lead to another attempt to takeover Burlington Northern. CN is waiting approval of its planned takeover of Wisconsin Central, a small 4,500-kilometre rail line by September.

Canadian Pacific Railway Co. said the rules should encourage more alliances instead of mergers, something CP has long been advocating.

"The rules make mergers much more stringent," said Len Cocolicchio, senior manager of communications for the Calgary-based firm.

The board said the rules will mean railroads wanting to merge will be met with a "more skeptical, 'show me' attitude" toward claims of merger benefits, and will also demand railroads look at other types of co-operative agreements.

"Given the size of the transaction that may be proposed in the future and, given the dangers involved should such transactions fail, the benefits claimed by future merger applicants will be very closely scrutizined," the board said.