WASHINGTON — No one from the Justice Department bothered to testify at the Surface Transportation Board’s September hearing on the proposed merger of Canadian Pacific and Kansas City Southern.
But that absence doesn’t mean the Justice Department doesn’t have concerns about the first merger of Class I railroads in two decades.
In a letter to the STB this week, the Justice Department emphasized that all the issues it raised about the deal in April — including the potential for a reduction in railroad competition, a reduced incentive to invest in new technology, and more concentration of the industry — still stand.
At the September hearing, CP and KCS argued that the STB could infer that the Justice Department’s Antitrust Division does not believe the merger has the potential to cause harm, eight Justice Department lawyers, including Assistant Attorney General Jonathan Kanter, wrote to the STB.
“No such inference should be drawn,” they said, noting the Justice Department said in April that it “shares the Board’s serious concerns about increasing consolidation in the industry” [see “Justice Department questions structure of CP-KCS merger plans,” Trains News Wire, April 12, 2021].
“The Antitrust Division emphasizes that the Board should not interpret the Antitrust Division’s absence from the Board’s September 2022 proceedings to imply otherwise,” they wrote.
The Justice Department once again urged the STB to give careful scrutiny to the proposed merger and its competitive implications. CP and KCS argue their merger will boost railroad competition, particularly for service linking Canada and the Midwest with Texas and Mexico. Other Class I railroads, however, have said the merger poses competitive problems, particularly at the KCS-controlled Laredo gateway to Mexico.
The letter was apparently triggered by hearing comments from CP and KCS witness Robert Majure.
“It’s also informative to look at who’s not complaining. The Department of Justice has a long history of concern for competition in the railroad industries,” he told the STB. “Their absence from these proceedings tells me that they don’t agree with these comments … From my own experience, they do not tend to be shy about expressing their concern and particularly in the rail industry. And from that experience, I would say that I can infer from that how they feel about the potential for harm from this particular transaction.”
CP lawyer David Meyer told the STB that the railroads agree with the Justice Department: The board should protect competition in the industry and fully examine competition concerns.
“Applicants certainly did not mean to suggest that DOJ had ever affirmatively concluded that any particular competition claim lacked merit or expressed affirmative support for the Transaction. However, as the long-closed factual record developed in this case establishes, Applicants have demonstrated both that the effect of the Transaction will be strongly procompetitive and that, especially in light of the commitments Applicants have made to the Board and the public, the claims of commenters raising competitive concerns lack merit and do not warrant conditions beyond those Applicants have already accepted,” Meyer wrote.
The STB is an independent agency that is nearing a completion of its review of the merger. Once a final environmental impact statement is issued, likely in the next couple of weeks, the board must wait 30 days to issue a final decision on the merits of the merger.
The Justice Department reminded the STB that the attorney general has the right to intervene in Class I mergers. The Justice Department did say, however, that it “remains committed to working collaboratively with the Board to protect and promote competition in the railroad industry, including sharing our perspective on pending transactions.”