The Surface Transportation Board, in a decision issued late Monday, put an indefinite hold on the $8.4-billion deal until it can weigh whether it’s appropriate to grant the normal exemption for an acquisition that does not involve two railroads, a Class I, or a deal that links rail lines.
“The board is considering the issues presented here, including whether the class exemption is appropriate for this transaction,” the STB’s decision says. “To provide sufficient time for the board to fully consider the issues presented, the exemption that is the subject of this proceeding will not become effective until further order of the board.”
Under U.S. law, railroad transactions fall into four categories: major, significant, minor, and exempt. Brookfield and G&W sought to have the transaction exempt from board review, as typically happens when a non-railroad company buys a railroad.
The board’s decision is an indication that it may weigh in on a transaction involving the control of 13,000 miles of track in 41 states.
“This isn’t really surprising,” says Todd Tranausky, a rail analyst with FTR Transportation Intelligence. “The exemption process was designed for small, straightforward cases.”
There’s nothing small about G&W, he notes.
“It’s not as though the transaction contemplates the acquisition of one 30-mile short line in Georgia by a non-carrier, which is really what the exemption process was set up to handle,” Tranausky says. “I think the board did the right thing here in terms of taking some time to evaluate the full picture of the implications of the transaction.”
Independent railroad analyst Anthony B. Hatch, like Tranausky, expects the STB to ultimately approve the Brookfield acquisition of G&W.
“I think that [Brookfield’s] case seems strong (it is a change of control, not a consolidation) but I am no lawyer,” Hatch says. “I think this could be interpreted as the STB simply being cautious.”
The board also ordered Brookfield and its investment partner, DIC, to provide status updates on review of the proposed transaction by the Committee on Foreign Investment in the United States. Brookfield is based in Canada, while DIC is an investment fund from Singapore.
The board said it would welcome comments from the public, as well as Brookfield and its investment partner DIC, until Aug. 21. Replies to comments are due by Sept. 5.
G&W and Brookfield on July 1 announced the deal to take the largest short line holding company private. G&W owns 120 short lines, primarily in North America, but also has operations in Australia and Europe.
A G&W spokesman says the railroad does not comment on matters before the STB. A Brookfield spokeswoman did not immediately return an email seeking comment.
