U.S. Justice Department urges rejection of CP, Norfolk Southern voting trust

Canadian Pacific Railway's proposed takeover of Norfolk Southern Railway ran into more opposition on Friday, with the U.S. Department of Justice urging a regulator to reject preliminary approval of the $28-billion US merger.

The Justice Department called on the U.S. Surface Transportation Board, which is reviewing the proposed union, to reject early approval of a voting trust structure that CP has put forward.

"Canadian Pacific's voting trust proposal would compromise Norfolk Southern's independence and effectively combine the two railroads prior to completion of the STB's  review," said assistant attorney general Bill Baer of the Justice Department's Antitrust Division.  

"That makes no sense. We urge the STB to preserve its ability to review the impact of the proposal on competition and consumers before Canadian Pacific starts scrambling the eggs," Baer said in a release.

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Calgary-based CP has proposed putting itself into a voting trust and installing its CEO, Hunter Harrison, as head of Virginia-based Norfolk Southern while the deal is reviewed.

On March 2, CP asked the Surface Transportation Board for early approval of the proposed voting trust.

According to Reuters, under the rules for a voting trust for a big railroad merger, the two parties have to operate separately until the merger is approved. Collusion, joint decision-making and any common control are all barred prior to that approval.

No major rail mergers have been approved since regulators imposed tough rules on them in 2001.

The Justice Department is the latest entity in United States to come out against the proposed CP-Norfolk merger.

Opposition mounting

Earlier this week, the U.S. Department of Defence said that putting Harrison at the helm of Norfolk Southern "could prove to be untenable due to the appearance of common control" of the two companies.

The department said it was too early to determine if the merge would affect U.S. defence, but added that "the potential certainly exists."

On April 5, the chairman of the U.S. House transportation and infrastructure committee voiced his opposition to a merger.

"I do not believe it is in the best interests of the U.S. freight transportation system, railroad employees, rail shippers 
and the short line railroads," Representative Bill Shuster, a  Republican from Pennsylvania, said in a statement.
 
"I believe it is time for all parties to move on from hypothetical merger proposals," he said.

Thus far, Norfolk Southern has rejected all of CP's takeover overtures.