CN Voting Trust Clears Tests Under STB New Merger Rules: Should Be Approved
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Having been one of the three
In adopting the 2001 new merger rules with respect to voting trusts, the STB voting trust regulation focused on the impending control application and did not create a “new test” to pre-judge the “public interest” merits of the entire proposed transaction before approving a voting trust. We were looking at the public interest factors that we believed were relevant to voting trust approval, not approval of the merger itself.
In reviewing voting trusts, we were focused on two factors: (1) would the trust insulate the target company from unlawful control by the acquiring company during the regulatory review process; and (2) would the acquiring company and target company remain financially sound so as to not jeopardize either railroad in the event the transaction was eventually denied. The new rules were designed to require applicants to formally meet these tests before the Board would approve the use of a voting trust.
Prior to adoption of the Major Merger Rules, parties proposing use of a voting trust were free to use it without Board approval. As a result, unless there was a controversy, the Board itself rarely reviewed voting trusts. As part of the 2001 proceeding, we wanted more authority over and transparency into the voting trust process. In that proceeding, we adopted rules that now require (1) applicants of a major transaction to file a voting trust for approval; (2) the Board to hold a “brief” period of time for the public to comment on the use of a voting trust; and (3) the Board to issue a decision after the comment period to either accept or reject the trust. As part of that formal review process, the STB examines the trust to ensure there is no unlawful control and to determine whether the voting trust is in the public interest regarding the financial integrity of the applicant carriers.
When considering the public interest of a voting trust, and as explained in the merger rules themselves, we were concerned about the financial health of the applicants and the divestiture of the target railroad if the STB did not ultimately approve the transaction. Specifically, we wrote then that the Board is “responsible for ascertaining whether a proposed transaction would undermine the financial integrity of the applicant carriers.”
As such, we adopted a public interest standard designed to focus on the financial fitness of the merging parties, which was one of the five public interest factors in the statute, and the most important factor in reviewing voting trusts.
The proposed CN/KCS trust should be approved. It incorporates the same elements that have already been approved for the now moot CP/KCS voting trust and proposes to use the same trustee. In approving the CP/KCS trust, the Board has already determined that the trust structure does not cause unlawful, premature control. The Board should reach the same conclusion with respect to the CN/KCS trust. Similarly, in the CP/KCS decision, the STB found that KCS will be financially fit while in trust, and the STB reached the same conclusion with respect to CP’s financial fitness.
Based upon the recent motion from CN regarding their proposed voting trust, it seems clear that CN is one of the most financially-sound railroads, and that it can more than cover any debt it must take on to acquire KCS. CN has agreed to forgo share repurchases until its debt ratio returns to pre-deal levels. CN, like CP, should be found financially fit.
Likewise, in approving the CP/KCS trust, the STB inherently found that there was no concern about divestiture of KCS in the event that the STB did not approve the transaction. Such a finding becomes even more poignant with respect to the CN/KCS trust because CP has been clear that it remains interested in acquiring KCS. On
The CN-KCS transaction appears to strengthen competition by adding a strong competitor in the North-South lanes in the industrial center of the country, and opens markets with new single-line hauls, creating more efficient movements among
Based upon my first-hand knowledge of the internal conversations within the Board from when I voted on the 2001 new merger rules, it is my opinion that the CN voting trust more than clears the two tests we established for such trusts in 2001 and should be considered on a level playing field with CP’s approved trust. The CN trust should be approved so that the Board and the public may move forward to consider the merits of the transaction.
For more information on CN’s pro-competitive combination with KCS, please visit www.ConnectedContinent.com.
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Certain statements included in this news release constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws, including statements based on management’s assessment and assumptions and publicly available information with respect to KCS, regarding the proposed transaction between CN and KCS, the expected benefits of the proposed transaction and future opportunities for the combined company. By their nature, forward-looking statements involve risks, uncertainties and assumptions. CN cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although reasonable at the time they were made, subject to greater uncertainty. Forward-looking statements may be identified by the use of terminology such as “believes,” “expects,” “anticipates,” “assumes,” “outlook,” “plans,” “targets,” or other similar words.
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Contacts:
Media: CN CN Media Relations & Public Affairs (514) 249-4735 Mathieu.Gaudreault@cn.ca (403) 512-5730 mcej@longviewcomms.ca (917) 459-0419 / (917) 818-9002 jdoorley@brunswickgroup.com rkral@brunswickgroup.com Media: KCS (816) 983-1372 dcarlson@kcsouthern.com (212) 355-4449 | Investment Community: CN Vice-President Investor Relations (514) 399-0052 investor.relations@cn.ca Investment Community: KCS Vice President Investor Relations (816) 983-1530 athorne@kcsouthern.com (212) 929-5748 / (212) 378-7071 |
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