Taking an unprecedented step, the federal government on Friday imposed a moratorium on mergers in the nation’s railroad industry while it struggles to develop regulations governing future combinations.
Burlington Northern Santa Fe Corp. and the Canadian National Co., which had been planning to file a merger application Monday, indicated they will challenge the decision in federal court. Their union would have created the biggest railroad in North America, with 50,000 miles of track stretching from Halifax, Nova Scotia, to Vancouver to New Orleans.
Industry officials had predicted the merger would set in motion a new round of consolidation, ending only when the continent’s seven largest carriers had merged into just two giants spanning the United States, Canada and Mexico. Those two would have been supplemented by regional operators.
While the government frequently has blocked mergers on antitrust grounds, it never has ordered a “breather” to give it time to develop regulatory provisions, industry officials said.
“Our current rules are simply not appropriate for addressing the broad concerns associated with reviewing business deals geared to produce two transcontinental railroads,” the three-member Surface Transportation Board said in announcing the 15-month moratorium.
Combined with a 16-month period the board has to review proposed mergers, the moratorium effectively blocks any rail marriages for 2 years.
That’s half as long, however, as the five-year moratorium that competitors to the Burlington Northern and Canadian National, owner of Chicago-based Illinois Central Railroad, were seeking during rail competition hearings last week in Washington.
The nation’s major railroads backed that moratorium to give them time to fix problems created by their recent mergers, but many regional railroads and government officials said they were opposed.
Friday’s decision also sets up a conflict within the U.S. Department of Transportation, of which the STB is a part. “We do not believe a moratorium on mergers is the right response,” DOT Secretary Rodney Slater told the board last week.
The Canadian National and Burlington Northern said they strongly object to the move.
“There is no justification for the STB to refuse to review the CN/BNSF combination promptly on its merits,” said Paul Tellier, chairman and chief executive officer of the Montreal-based Canadian National. “The notion that the two most efficient railroads in North America cannot combine now to improve their business because the other major railroads are having trouble running theirs has the effect of protecting competitors, not rail competition, and clearly is against the public interest.”
Aaron Gellman, director of the Northwestern University Transportation Center, termed the decision “outrageous.”
“There is a large issue of whether a moratorium like this is reasonable because it undermines the value of the shareholders’ holdings,” he said.
But competitors to the CN/ BNSF merger welcomed the moratorium.
“Although a longer pause would have been preferable, the board’s action clearly reflects the unstable nature of the industry,” said John W. Snow, chairman and chief executive officer of the Richmond, Va.-based CSX Corp.
Railroad stocks, which have been under pressure since the two railroads announced their plans to merge shortly before Christmas, edged higher Friday. Investors apparently are betting that the moratorium will allow the industry to more fully recover from its merger mania of the 1990s.
