(The following column by Andrew Willis appeared on the Globe and Mail website on March 10, 2009.)
TORONTO — In railways circles, there’s always been a sense that the industry hasn’t quite finished sorting itself out.
Nine years ago, Canadian National Railway proposed a tie-up with Burlington Northern Santa Fe that would have created North America’s largest rail network, and forced rivals such as Canadian Pacific into unions of their own.
CN’s $2.4-billion (U.S.) merger plan was shut down by regulators at the U.S. Surface Transportation Board, or STB, but the agency’s 15-month moratorium on deals expired long ago. Given the customer clout and savings that come with combining forces, there’s always been a sense that CN, or one of the five other major railways, would try to cut a new deal.
That tension is not lost on U.S. lawmakers, who moved last week to make a railway merger much more difficult to contemplate.
The U.S. Senate voted last week to remove antitrust exemptions enjoyed by the railway industry, and make any future mergers subject to Department of Justice approval. That scrutiny would be in addition to the STB’s deal-killing authority.
Critics say this is a step backward for the industry. “The legislation is undesirable and it could lead to additional lawsuits accusing the railroads of collusion,” JP Morgan analysts said in a report. The dealer said: “If the Rail Antitrust Bill passes, it would create greater uncertainty regarding future approval of railroad acquisitions.”
In JP Morgan’s view, the regulatory uncertainty doesn’t affect short-term valuations on CN and CP, as neither was on the verge of a deal. But in the future, a harsher regulatory regime will weigh on both Canadian railways, with CN seen as a buyer, and CP as a target.
JP Morgan did note that the Senate move “could be viewed as a negative for Kansas City Southern, which on occasion is viewed as a takeout candidate by one of the large six North American railroads.”