Filed by Canadian National Railway Company
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Canadian National Railway Company
Commission File No. 333-94399
The following documentation is included in the special website for the CN-BNSF
Combination at http://www.cn-bnsfcombination.com. Additional documentation in
this website has already been filed.
<PAGE>
[Francais][Search][Contact Us][Site Map][Home]
[CN-BNSF Combination]
[Email Subscription Service]
[CN] [BNSF] [Email Subscription Service]
[News Center]
[Combination Documents]
[Key Facts]
[Questions and Answers]
[Speeches and Presentations]
[CN Information and Biographies]
[BNSF Information and Biographies]
[Regional Benefits]
[Events Calendar]
[About the CN-BNSF Combination Site]
This Web site has been created to provide detailed information to CN
shareholders and other interested parties on the CN-BNSF Combination announced
on December 20, 1999. The site contains the latest details on the Combination
and is updated regularly.
[STB Imposed Moratorium]
Combination benefits delayed
On Friday, March 17, the U.S. Surface Transportation Board imposed a 15-month
delay in the consideration of any rail consolidations - in effect, a moratorium
that prevents CN and BNSF from moving ahead with our combination, at this time.
Both railroads strongly disagree with this unprecedented decision and are
challenging this ruling in the courts. On March 17, CN filed a Petition for
Review with the U.S. Court of Appeals (District of Columbia). BNSF also filed a
Petition for Review.
Join our subscription service to receive timely updates when any new
information appears on the site. Please provide your email address.
[Subscribe]
[What's New]
March 23, 2000
Canadian National's Paul M. Tellier tells U.S. Senate Commerce Committee STB's
rail merger moratorium is unlawful and unfair
March 21, 2000
CN opts to delay Special Meeting of Shareholders -- Annual Meeting scheduled
for April 19, 2000
March 17, 2000
CN launches legal challenge to STB decision
March 10, 2000
Statement of Paul M. Tellier, President and Chief Executive Officer of Canadian
National Railway Company, and Robert D. Krebs, Chairman and Chief Executive
Officer of Burlington Northern Santa Fe Corporation
(c) 2000, Canadian National Railway Company
Legal Terms and Conditions
Created by iStudio
<PAGE>
<PAGE>
THE JOURNAL OF
COMMERCE
WEDNESDAY, FEBRUARY 9, 2000
Unable to play, they're trying to stall game
SAVE ME! SAVE ME!
You can almost hear the cries of "Save me! Save me!" from competing railroads
that oppose the proposed business combi- nation of Burlington Northern Santa Fe
Corp. and Canadian National Railway Co.
In a world that has become accustomed to corporate-speak that rarely says
anything of consequence, it was refreshing to hear CSX Corp. Chairman and Chief
Executive John Snow recently acknowledge that he was not opposing the BNSF-CN
transaction on its merits.
"It might even be a good merger," he allowed.
His objection is based on timing.
This is a dreadful time for the transportation world to be forced to deal with
another major rail merger. That's the litany we hear from Snow and colleagues
Dick Davidson, chairman and chief executive of Union Pacific Railroad, and
David Goode, chairman, president and chief executive of Norfolk Southern Corp.
Why is the timing so bad? It's bad because the opponents aren't in a position
to play in the merger game themselves.
With candor, Snow pointed out that his railroad and the others have terribly
weak balance sheets, which is why they don't want to be forced into mergers to
compete with the combining BNSF and CN.
The opponents do not, however, explain that their weak balance sheets result
from their own actions. If they did, they might have to admit that they are
asking to be "saved" from themselves.
As one attendee at the CSX analyst meeting harrumphed: "There's a lot of
socialists wearing capitalist suits."
First, going back to Union Pacific's ill-fated 1994 attempt to prevent
Burlington Northern Inc. from buying Santa Fe Pacific Corp., each rail merger
has been more costly than the last.
The takeover fight for Santa Fe cost BN nearly $1 billion more than it
originally offered. Having forced railroad valuations up, UP's 1995 purchase of
Southern Pacific Rail Corp. carried a purchase premium of more than $1 billion,
and the ensuing bidding war between Norfolk Southern and CSX over Conrail cost
the two buyers a purchase premium of more than $2 billion.
The service collapse that followed UP's ill-fated early attempt to integrate SP
into its system led to huge operating losses, a cut in the dividend, and
issuance of convertible preferred stock that can be changed into UP common
stock at $68.90 a share.
Photo Caption:
SURFACE
REFLECTIONS
LAWRENCE H KAUFMAN
Similarly, the problems of integrating Conrail operations into their own has
cost Norfolk Southern and CSX untold hundreds of millions of dollars in
additional operating expenses and lost revenue opportunities.
Purchase premiums and operating problems led to weak balance sheets.
So they can't play in the merger game. There's more than just ego at stake
here. UP, particularly, and CSX and NS face the prospect of having to compete
against a combined BNSF-CN that will be solidifying its position and locking up
market share while they watch helplessly.
Under current law and public policy, the BNSF-CN transaction appears to meet
the public-interest test for approval. So the opponents are doing the only
thing they can: They are trying to delay the other guy's deal.
That strategy was clear in the advertising aimed at customers (and government
and investors) that ran last month in The Journal of Commerce and other
newspapers.
That's not all they're trying.
They also are making an effort to persuade institutional investors, many of
which hold several railroad stocks in their portfolios, to vote against the
BNSF-CN combination. Both BNSF and CN stock prices have fallen since the merger
was announced, and opponents argue a rejection would give their stocks a "bump."
A high BNSF executive says the company is not taking the threat lightly, but
adds that those who were unhappy already have voted with their feet by selling
the stock. Most of that stock, he says, has moved to investors who saw the
lowered price as a buying opportunity.
And opponents continue to seek delay in the regulatory process. Snow suggested
to securities analysts that the Surface Transportation Board might even dismiss
the application without prejudice, telling the applicants to refile at a later
date - presumably when UP, CSX and NS are better able to play.
The latter scenario is extremely unlikely. First, the STB can't very well
dismiss a merger application until it's filed with the agency. Once it's filed,
there is a legal and statutory process to be followed in dealing with the
application.
About the only times the STB and its predecessor Interstate Commerce Commission
have been reversed by the courts have been when the agency was found to have
denied due process to the applicants. Linda Morgan, STB chairman, and Henri
Rush, current STB general counsel, are both too smart to allow that to happen
in this case.
The bottom line? The battle will go on for the next year and a half, at least.
- --------------------------------------------------------------------------------
Lawrence H Kaufman is the national
transportation correspondent of The
Journal of Commerce. He can be reached
at [email protected].
Reprinted with permission from The Journal of Commerce
<PAGE>
Photo Caption:
[LOGO] R A I L
Shippers Disunited?
BY JOHN GALLAGHER
NIT League, chemical shippers
not on same 'merger' page
An announcement by the Chemical Manufacturers Association that it will oppose
the Burlington Northern Santa Fe Railway-Canadian National Railway merger may
have done more to spark discord among rail shippers than serve as a preemptive
strike against BNSF and CN.
At a Jan. 20 press conference, CMA said it would oppose the merger unless
certain conditions are met, including reciprocal switching, trackage rights and
haulage rights, or by directing CN-BNSF to quote a rate between any two points
where the railroad originates, terminates or interchanges freight.
Photo Caption:
The Chemical Manufacturers Assn. will oppose the Burlington
Northern Santa Fe Railway-Canadian National Railway merger
unless certain guarantees are given its members. The
NITL wants a less parochial approach.
In voting to oppose the proposed merger, CMA Executive Committee Chairman Whitt
Sadler said chemical shippers pay nearly $5 billion a year in rail costs. "The
CMA membership, along with other industries, has suffered from recent rail
mergers," he said. "The mergers have caused a severe disruption of service and
have done nothing to bring competitiveness to the rail industry."
Sadler said that nearly two-thirds of the country's chemical manufacturing
facilities are captive shippers with no competitive alternatives. As a result,
those facilities are forced to pay 15 to 60 percent more for services than
comparable shippers. The association, he said, has conducted extensive surveys
of members whose companies have competition versus those that don't in regard
to shipments of the same product over the same distance. The results are
"shocking to us as an industry," he said.
In light of this, "CMA will tell the STB that if, in spite of all the
rejections it receives, it does decide to approve the merger, the STB should
only do so if it attaches pro-competition conditions allowing captive shippers
the right to receive service from a competing railroad," Sadler stated.
But just as the rail industry was blind- sided by the news in late December of
BNSF's and CN's plans to combine their companies, so too was National
Industrial Transportation League President Ed Emmett. He said he was
"astonished" by the announcement and had not been briefed in any detail about
it.
"What's the end result we want to achieve here?" Emmett said. "Do we want a
rail system in North America that has five railroads with their own protected
franchises that don't compete with each other, or do we want two systems that
compete head to head throughout the continent? I think most shippers would go
for the competitive alternative. And this (CMA proposal) doesn't get us there."
Emmett says he wants a commitment from the railroads that they will compete for
other traffic if they merge. "But this (proposal) just seems to be a punitive
thing," Emmett said. "It looks like (Union Pacific Railroad) wrote it for CMA.
Shippers want a railroad that's willing to go to bottleneck shippers and offer
them a rate, to tell BNSF-CN that we want to see that you're going to be a
competitive railroad, that you're actually going to go out there and compete
for traffic. That's different from telling them you're going to have to give up
a whole bunch of your traffic just to get the merger approved."
CMA director Randy Speight said the plan was to inform CN President and CEO
Paul Tellier and BNSF Chairman Rob Krebs of CMA's position shortly after the
press conferences. "We also will communicate (CMA's opposition) to members of
Congress and to each of the (Surface Transportation Board) commissioners,"
Speight said. "We also will make a filing (at the STB) with this position at
the appropriate time." When asked what CMA hoped to accomplish by coming out in
opposition to the merger before the formal STB process was under way, Speight
said, "It's not rocket science. If we look at where we are today, we're in an
environment where effective competition does not exist. We can't afford to
jeopardize the few choices that members currently have by allowing (another
merger to go through) unless conditions are clearly put on the railroads."
Notwithstanding Emmett's characterization of CMA's opposition to BNSF-CN,
CMA says its aim is to return to the pro-competitive aspects of the Staggers Act
of 1980. "The points in the Staggers Act are very compelling that Staggers
wanted com-
January 31, 2000 o trafficWORLD o 37
<PAGE>
[LOGO] R A I L
petition in the rail industry," Sadler said. "The STB has ignored that, and
said that if you want to change our interpretation, you need to get new
legislation to give us direc- tion. We're looking for fair interpretation of
Staggers, that's all. We'd be very happy with it if it were interpreted
properly."
A spokesman for CMA said it's not only chemical producers and manufacturers who
have suffered the disadvantages of these RR mergers. "Pulp and paper,
agriculture and a number of other organizations that ship across rail lines
have suffered from some of the same service lapses and price increases as we
have," he said. "But this (CMA opposition) was our statement and our decision,
it was not a coalition."
And much to the chagrin of Emmett. "I was hoping to create a mood of, `Look,
let's talk about a truly competitive railroad system. But this just punishes
the heck out of (BNSF and CN), and they're not going to go for it. Would you?
They're going to look at it and say, `Wait a minute, we've got to give access,
in essence, to their entire customer base,' and UP, for example, wouldn't have
to give them any. So I just found it very odd," said Emmett. NITL "is looking
forward to working with CMA, a lot of our members are the same. But I always
try to have some end-game in mind as to where I want to be when it's all over,
and I don't know where this gets us."
January 31, 2000 o trafficWORLD o 38
<PAGE>
TW
Editorial
Most Curious
In the curious world of railroad regulation, the proposed merger of Canadian
National Railway and Burlington Northern Santa Fe Railroad may prove to be most
curious.
The CN-BNSF merger, viewed objec- tively, is much more deserving of Surface
Transportation Board approval than the Conrail carve-up or the Union Pacific-
Southern Pacific merger. And yet CN and BNSF will find it much more difficult to
win approval. That is partly because of the mess their competition made of those
transactions and partly because of their competitors' hid- den anti-competitive
motives.
Let's look at why the CN-BNSF merger should be approved:
o The joining of Canadian National and Burlington North- ern Santa Fe is largely
an end-to- end merger. Unlike the Union Pacific-Southern Pacific merger,
this deal will not result in many points going from three-railroad service to
two, or two-railroad service to one.
o The CN-BNSF merger is a stock transaction, trading shares of each rail- road
for shares in a new umbrella corpo- ration. The Conrail carve-up, by contrast,
was a bidding war ending in a large cash payout to Conrail shareholders and huge
acquisition debts for CSX and Norfolk Southern. Once they solve their merger
problems, NS and CSX are likely to look to shippers to repay that debt. The CN-
BNSF deal won't create a burden of debt.
o Canadian National has an excellent reputation for customer service not evi-
dent among most other railroads.
o Canadian National accomplished a similar end-to-end merger with Illinois
Central without a hitch.
o By creating a second transcontinental railroad (CN already is a
transcontinental railroad within Canada), the CN-BNSF merger promises
substantial single-line efficiencies. Shippers will be able to load their
freight on one coast and have it deliv- ered to the opposite coast without
inter- change delays. The merger should simplify and lower the cost of the
landbridge.
But the CN-BNSF merger will be more difficult because:
o Shippers are distrustful of another merger with the disaster of the Conrail
carve-up still ongoing and the memories of the Union Pacific meltdown still
fresh.
o Other railroads, despite their own operational foul ups, will be fighting
vocif- erously against the CN-BNSF deal in order to protect the value of their
own franchise.
o The Surface Transportation Board has changed the rules and raised the bar that
CN and BNSF must jump.
You can't blame shippers for a "just say no" response to this merger proposal.
The delays in the West caused by the Union Pacific merger were just evapo-
rating when the Conrail carve- up doubled many transit times in the Northeast.
Railroads that compete with CN and BNSF will do all they can to parlay the
shipper antagonism that they created into opposition to a new merger.
It appears that those railroads are already benefiting from the STB's unex-
pected announcement last week that the CN-BNSF merger will be judged by crite-
ria that are more stringent than those used in the Union Pacific or the Conrail
cases.
In brief, the STB now says it will judge the CN merger not only on its immediate
effect on the railroad landscape, but also on problems caused by previous
mergers and on any mergers among other rail- roads that might be expected to
result if the CN merger goes through.
All of this creates a curious picture of railroad regulation. Those who have
failed in their merger efforts can use their failures to block those who have
been successful. And by adopting rules that should have been followed all along,
the STB can appear to be pro-shipper as it acts to pro- tect other railroads
from new competition.
/s/ Clayton Boyce
Publisher/ Clayton Boyce [] 202-661-3372
Editor-in-Chief ([email protected])
Managing William B. Cassidy [] 202-661-3374
Editor ([email protected])
- ------------------------------------------------
Associate Editors
AIR Kristin S. Krause [] 202-661-3378
([email protected])
- ------------------------------------------------
CAPITOL HILL Frank N. Wilner [] 202-661-3371
([email protected])
- ------------------------------------------------
LOGISTICS & Ken Cottrill ([email protected])
MARITIME P.O. Box 622 [] Yardley, PA 19067
215-493-7555 / Fax: 215-493-6278
John Parker [] 331-4524-3869
1 Rue Mirabeau
Paris 75016 France
([email protected])
- ------------------------------------------------
RAIL John Gallagher [] 202-661-3382
([email protected])
- ------------------------------------------------
TECHNOLOGY Kathleen Hickey [] 202-661-3359
([email protected])
- ------------------------------------------------
TRUCKING John D. Schulz [] 202-661-3380
([email protected])
- ------------------------------------------------
Web Creative Allyn B. Summa [] 202-661-3379
Director ([email protected])
Art & Production Christopher McGee [] 202-661-3377
Director ([email protected])
Assistant Jay Sevidal [] 202-661-3375
Art Director ([email protected])
Copy Editors Randi Einbinder, Essell Thomas
People & India Jackson [] 202-661-3353
Calendar Editor ([email protected])
MAIN EDITORIAL OFFICE
1230 National Press Bldg. [] Washington, DC 20045
202-783-1101 [] Fax: 202-661-3383
- ------------------------------------------------
MAIN ADVERTISING OFFICE
6205 Barfield Rd., Suite 220 [] Atlanta, GA 30328
404-843-8206/fax: 404-847-9602
Advertising Director
Steve Prince ([email protected])
Midwest/West Coast Advertising Manager
Pam Latty ([email protected])
Southern Advertising Manager
Tim Lord ([email protected])
For editorial calendar, ad rates and media kit:
Sue Addy [] 404-843-8206
Eastern Advertising Manager
Paul Schnabel ([email protected])
973-659-9172 / fax: 973-659-9173
196 Mount Pleasant Ave., Rockaway Township, NJ 07866
- ------------------------------------------------
Reprints/ John Ovanessian [] 212-837-7199
Internet Sales Traffic World [] 2 World Trade Ctr.
Manager New York, NY 10048
([email protected])
Classified Lori Sadukas
Advertising 800-222-0356, Ext. 6167
Manager ([email protected])
CUSTOMER SERVICE OR TO SUBSCRIBE: 800-331-1341
Send address change to: Customer Service/Traffic World
445 Marshall St. [] Phillipsburg, NJ 08865
BUSINESS OFFICES
2 World Trade Center [] New York, NY 10048 [] 212-837-7000
- ------------------------------------------------
Photo Caption:
Published By
Journal of Commerce Inc.
an Economist Group company
Photo Caption:
President Bill Ralph
Sr. VP, Marketing & Circulation Stephen W. Brennen
Sr. VP, Production & Distribution William Simmons
VP, New Media William E. Lavner
VP, Finance Mark Harabedian
Conference Director Mark Wieckowski
January 3, 2000 [] trafficWORLD [] 5
<PAGE>
[Francais][Search][Contact Us][Site Map][Home]
[CN-BNSF Combination]
[CN] [BNSF] [Combination Documents]
[News Center]
[Combination Documents]
[Key Facts]
[Questions and Answers]
[Speeches and Presentations]
[CN Information and Biographies]
[BNSF Information and Biographies]
[Regional Benefits]
[Events Calendar]
CN's Petition For Stay Pending Judicial Review
Pursuant to the Board's Rules of Practice, 49 C.F.R. Sec. 1115.5, Canadian
National Railway Co. ("CN") hereby petitions for a stay pending judicial
review1 of the Board's decision served March 17, 2000 ("Decision"). Rather than
repeating positions stated in BNSF's petition for a stay, CN will supplement
BNSF's arguments.
INTRODUCTION
The Board's moratorium is not authorized by statute. It conflicts with the
approach to control transactions prescribed by Congress in the Interstate
Commerce Commission Termination Act ("ICCTA") because it makes the strict
timetables that ICCTA imposed on the Board meaningless.
Harmful consequences follow from the Board's ultra vires order. The Board has
frozen the competitive structure of an entire industry for at least two to
three years, causing irreparable injury to CN, BNSF, and their shippers. The
moratorium is overbroad in relation to the service problems that are the
Board's motivating concern; and may have unconstitutionally bound and gagged
railroad managements through a catch-all prohibition. By failing to
differentiate between the service and other characteristics of the Class I
carriers that support a moratorium and BNSF and CN, which oppose it, the Board
is protecting competitors in an anti-competitive fashion.
All of this is unnecessary. The Board's normal processes, carefully applied,
enable it to reach results in the BNSF/CN docket that properly respond to
immediate concerns. The Board, for example, has the means to constrain another
"round" of consolidations during its rulemaking without foreclosing the
opportunity to hear whether a particular consolidation is in the public
interest. In these circumstances, each of the four factors that the Board has
identified for a stay pending judicial review has been satisfied.2
I. UPON JUDICIAL REVIEW, CN IS LIKELY TO PREVAIL ON THE MERITS
A. The Board Does Not Have The Statutory Powers It Claims
The Decision conflicts with the ICCTA scheme of deadlines and procedures
embodied in 49 U.S.C. Sections 11324 and 11325. It is an unlawful exercise of
authority unless the Board has other authority that "trumps" the ICCTA scheme.
There is, however, no such other authority. The substantive provisions cited as
authority in the Decision, subsections (a) and (b)(4) of 49 U.S.C. Sec. 721,
are ancillary to the Board's explicit statutory powers, and for reasons
substantially set forth in BNSF's petition, provide no authority for the
Board's action. The Board has cited no explicit statutory power that it is
"carrying out," as would be required to invoke section 721(a), or as to which
its moratorium order is "necessary" and "appropriate," as required by section
721(b)(4). The moratorium is thus unlawful, "[r]egardless of how serious the
problem an administrative agency seeks to address." FDA v. Brown & Williamson
Tobacco Corp., No. 98-1152, slip op. at 1 (U.S. Mar. 21, 2000).3
The Board did cite the Rail Transportation Policy ("RTP") as the statutory
source of the interests with respect to which it was acting to prevent
"irreparable injury." See Decision at 9-10. The RTP, however, can be
implemented only through the substantive regulatory provisions of the Act; it
is a measure of the correctness of the Board's exercise of its regulatory
powers, but it is not a source of such powers.4 The Board does not have plenary
authority outside of any particular regulatory provision to implement the RTP
directly, whether as an exercise of ancillary powers or otherwise to prevent
"irreparable injury." For example, the Board could not initiate a rulemaking to
implement the RTP directly; it could only issue rules to implement particular
regulatory provisions.5 Most certainly, the policies in the RTP "do not
supersede specific provisions of the statute." Petition to Disclose Long-Term
Rail Coal Contracts, supra, at *16. Thus, the Board can properly take the RTP
into account in deciding whether to amend its control-transaction rules and in
applying the "public interest" standard of section 11324(c) to particular
transactions. The RTP does not authorize the Board to "supersede specific
provisions of the statute" that govern the timetable for its consideration of
such transactions. Id.
B. The Board Has Improperly Invoked Section 721(b)(4)
Section 721(b)(4) is simply not a freestanding authority to prevent whatever
the Board may deem to be irreparable injury. In DeBruce Grain, Inc. v. Union
Pac. R.R., STB Docket No. 42023 (STB served Apr. 27, 1998), the Board (agreeing
with Union Pacific)6, stated that the criteria for exercising its authority
under section 721(b)(4) are the same as those governing preliminary
injunctions; it rejected the "narrow view" that irreparable harm is the only
relevant consideration. The criteria include the movant's likelihood of success
on the merits, i.e., the merits of the pending adjudicative proceeding in which
the order is issued. Id. at 3 n.7. Prior to the Decision, the ICC and the Board
had issued such relief only where sought by movants in particular
adjudications. Here, the Board's "unprecedented" (Decision at 10) Decision was
issued solely in the context of Ex Parte No. 582, which is a public hearing,
not an adjudication, and without any assessment of a movant's likelihood of
success on the merits of a particular claim. Indeed, the fact that there could
be no such assessment in the present context (what merits? whose likelihood of
success? in what proceeding?) demonstrates that the Board has attempted to
invoke section 721(b)(4) in an inappropriate context.
Moreover, by its terms, section 721(b)(4) does not excuse the Board from any
provision of law other than the cited provisions of the Administrative
Procedure Act, which concern procedural requirements for agency rulemaking and
formal adjudication. Section 721(b)(4) provides no basis for the Board to
override directly or indirectly the mandatory statutory framework that ICCTA
established for expeditious review of control applications, which imposed
specific time requirements. See Post-Hearing Comments of Canadian National
Railway Co. in Ex Parte 582.7
C. As A Section 721(b)(4) Order, the Decision Is Procedurally and
Substantively Defective
Even if section 721(b)(4) provided freestanding authority, the Decision would
still be procedurally defective. There was no prior notice or opportunity to
address that provision of the statute and its requirements. And while a finding
of "irreparable injury" is by its nature forward-looking, the Board has acted
here not upon evidence but upon speculations derived from contradictory and
otherwise implausible assertions that cannot support such a finding. Thus, for
example, the Decision relies upon threats by CN's competitors that amount to
this: during the pendency of the BNSF/CN proceeding, those competitors would
expend their management energies in the consideration or pursuit of
transactions that could have little or no hope of Board approval because they
are contrary to the interests of their shippers and the public. Further, this
finding accepts the contradiction in the assertions of the competitor
railroads: that they will be forced to focus on their own mergers but that
mergers are unnecessary in order to bring to shippers most of the benefits that
mergers bring.8 And it simply ignores the uncontradicted evidence that the
railroad industry is having no difficulty raising the debt capital that it
needs for continuing investment in rail assets.
Moreover, even if authorized and procedurally proper, the Decision is
substantively defective. First, the moratorium is overbroad (and thus neither
"necessary" nor "appropriate") insofar as it applies to the application to be
filed by CN and BNSF, and for that reason alone it is arbitrary and capricious.
If the Board believes it has the power it exercised in the Decision, to avoid
the reactions that other railroads might have to the BNSF/CN proposal, it was
only necessary to exercise that power against those railroads who sought Board
action to prevent them from considering follow-on combination possibilities
until at least a number of years had passed. The Board's perceptions that it
faces "not ordinary circumstances" and that the moratorium is "unprecedented"
only heightens the need to limit in this way what might otherwise be an
overreaction, particularly in light of the undeniably anticompetitive
consequences of a moratorium. Those consequences make it all the more essential
that any action be no broader than necessary.
The Board sought to justify its moratorium order on the grounds that "the rail
community is not in a position to now undertake what will likely be the final
round of restructuring of the North American railroad industry, and . . . our
current rules are simply not appropriate for addressing the broad concerns
associated with reviewing business deals geared to produce two transcontinental
railroads" (Decision at 2). Of course, the BNSF/CN combination is not
necessarily part of such a "final round." And the radical step of a moratorium
was not needed to deal with these concerns; the Board has more measured means,
which it did not choose.
The Board could have confirmed that, in applying the public interest standard
to the BNSF/CN application and any future applications, it would examine the
possible effects of the transaction on the service of other carriers; the
current service levels of the applicant carriers; the reasons for expecting
that the applicant carriers will implement the proposed transaction without
major service disruptions (as to which their performance in implementing prior
mergers would be relevant and material); and the financial ability of the
applicant carriers to carry out the integration measures contemplated by the
application and to continue to invest after the transaction.
The Board could have stated that negative findings as to these factors will
make it unlikely that the Board would conclude that the transaction is in the
public interest, absent an extraordinary showing of countervailing public
benefits. Such an announcement would, as a practical matter, make it highly
unlikely that UP, CSX or NS would apply for control authority during the next
15 months, that there would be another "round" of control proceedings, or that
the Board would be presented with an application to create the first of what
might be only two transcontinental US railroads. This announcement would, of
course, be consistent with the Board's Decision No. 1A in the BNSF/CN docket,
in which it stated that it would take into account "downstream effects."
Neither of the above alternatives would preclude the Board from initiating a
rulemaking to consider issues that may be posed by transcontinental U.S.
mergers, and any other issues relating to control proceedings. Should the
rulemaking reveal an additional element of the public interest not limited to
proposals for transcontinental railroads, the significance of that new element
for the BNSF/CN proceeding, and how that element should be applied, it can be
dealt with in that proceeding. If CN and BNSF are willing to take that
regulatory risk, it is not reasonable for the Board to refuse them a hearing.9
Second, the moratorium is also at odds with the First Amendment.10
The order directs all Class I railroads to "suspend activity relating to any
railroad transaction that would be categorized as a major transaction." It
raises fundamental constitutional questions to the extent it precludes a wide
range of activities that may arise over time, including the following
illustrative list:
o Seeking Congressional or Executive Branch support for action to
nullify the Decision and to allow the BNSF/CN transaction to be
timely reviewed and approved.
o Fulfilling existing contractual obligations related to potential
major control transactions, such as the holding of shareholder
meetings and votes.
o Informing shareholders or other stakeholders of the state of a
pending or potential future major control transaction.
o Unilaterally studying possible major control transactions (as UP
apparently did as to CP), including studies of the potential impacts
of alternative control transactions in comparison to each other and
to the status quo to determine which might best promote the financial
health of the industry and improve service to shippers.
o Developing or communicating plans for the period during and following
the moratorium that would relate to a major control transaction.
o Communicating with any party, including employees, carload and
intermodal customers, federal, state, and local officials,
shareholders, potential investors, consultants, bankers, other
railroads, and the media about plans that would or might entail a
major control transaction or a response to a major control
transaction.
o Developing mechanisms to increase environmentally beneficial
competition with trucks that would depend on or relate to a major
control transaction.11
o Discussing or entering into financial and other contractual
arrangements with non-railroad parties or changing charter provisions
in anticipation of offensive or defensive strategies with respect to
one or more future control transactions.
II. THE BALANCE OF HARDSHIPS FAVORS CN
A. CN and The Public Interest Will Suffer Irreparable Harm Absent A Stay
Courts have recognized that irreparable harm results inherently "as a matter of
law" from delay in corporate control transactions.12 For example, laws that
delay tender offer processes in conflict with Congressionally imposed time
limitations inherently give rise to irreparable injury, because delay is
precisely the harm that Congress sought to avoid. See Kennecott, 637 F.2d at
188-89.
With respect to railroad control proceedings in particular, Congress,
protecting both public and private interests, made clear in the 1976 and 1980
amendments to the Interstate Commerce Act, and reaffirmed in ICCTA, that delay
in railroad control proceedings is intolerable. Congress recognized that
complex control transactions are highly time-sensitive, which is why it left
timing to private initiative; and if there are shipper benefits to be had,
delay means that they are irretrievably lost. The injuries occasioned by the
Board's sweeping prohibition are both concrete and inevitable.
Moreover, infringement of First Amendment freedoms, "for even minimal periods
of time, unquestionably constitutes irreparable injury." Elrod v. Burns, 427
U.S. 347, 373 (1976); Branch v. FCC, 824 F.2d 37, 40 (D.C. Cir. 1987).
B. A Stay Will Not Harm The Public Nor Other Parties
The Board's Decision purports to base the imposition of the moratorium on
certain supposed "harms" to the railroad industry and, even more tenuously, to
the public at large. There is no basis for this theory. Congress determined
that a prompt and fair hearing was in the public interest. A large majority of
the shipper participants in Ex Parte 582 wanted BNSF/CN to be judged on the
record after a prompt and fair hearing; few, if any, shippers claimed they
would be harmed by a fair hearing. And it is hard to imagine any party other
than the railroads seeking the Board's protection from competition which would
seriously contend that it would somehow suffer cognizable harm if the Board
were to abide by the time limitations imposed by Congress in considering
control transactions while concurrently conducting a rulemaking relating to
control transactions.
As discussed above, BNSF and CN would not be harmed by parallel proceedings
that complied with the Congressional deadlines, and neither would the other
Class I railroads. The Board asserts that other Class I railroads will focus on
fashioning "strategic responses" to the BNSF/CN control application and not on
addressing the service problems that continue to prejudice their customers.
Decision at 3-4, 5, 7, 8. This supposed "distraction" harm is not plausible. It
rests on contradictory and otherwise implausible assertions by other railroads
eager to receive the protection the moratorium affords them from the increased
competition they correctly anticipate from a BNSF/CN combination. In any case,
as described above, the Board has other means to prevent injurious or
ill-considered follow-on mergers. Those means are sufficient to meet the
Board's findings concerning this supposed distraction and shift in management
priorities, which related primarily to another "round" of applications, or to
applications seeking to create one or more U.S. transcontinental railroads. See
Decision at 3-4, 5, 7, 8, 9. Otherwise, since these railroads have never before
shown a reluctance to participate in a competitor's transaction proceeding, and
no showing was made in Ex Parte 582 that their prior participation had been
"distracting," there should be no need for the Board to be concerned that these
railroads will be distracted by participation relating to the BNSF/CN
application alone. That would certainly be the case if the Board were to take
the simple steps that would assure that, until the other railroads have their
service and finances back in order, their "responsive" applications are not
practical options.
C. A Stay Is In The Public Interest
A stay would serve the public interest. There is a Congressionally emphasized
public interest in the acceptance and prompt consideration of control
applications. The public interest would be disserved by broadly forbidding the
railroads from engaging in activities, separately or jointly, that could
improve service and increase efficiency through control transactions.
CONCLUSION
The Board should stay its Decision pending judicial review and, upon filing by
BNSF and CN of their application, reach a decision on the merits within the
16-month period prescribed by statute.
Respectfully submitted,
Jean Pierre Ouellet Paul A. Cunningham
CANADIAN NATIONAL David A. Bono
RAILWAY COMPANY Richard B. Herzog
P. O. box 8100 Gerald P. Norton
Montreal, PQ H3B 2M9 HARKINS CUNNINGHAM
(514) 399-5430 801 Pennsylvania Avenue,
N.W., Suite 600
Washington, D.C. 20004-2664
(202) 973-7600
Attorneys for Canadian National Railway Company
March 23, 2000
CERTIFICATE
I hereby certify that on this 23rd day of March 2000, I caused a copy of the
foregoing Petition of Canadian National Railway Company for Stay Pending
Judicial Review (Corrected and Supplemented) to be hand-delivered to the
following:
William L. Slover Erika Z. Jones
C. Michael Loftus Roy T. Englert, Jr.
Robert D. Rosenberg Adam C. Sloane
Slover & Loftus Mayer, Brown & Platt
1224 17th St., N.W. 1909 K St., N.W.
Washington, D.C. 20036 Washington, D.C. 20006
The Honorable Janet Reno G. Paul Moates, Esq.
Attorney General of the United States Sidley & Austin
Department of Justice 1722 Eye St., N.W.
950 Pennsylvania Ave., N.W. Washington, D.C. 20006
Washington, D.C. 20530
Henri F. Rush, General Counsel J. Michael Hemmer, Esq.
Surface Transportation Board Covington & Burling
1925 K Street, N.W. 1201 Pennsylvania Ave., N.W.
Washington, D.C. 20423 Washington, D.C. 20044-7566
Terrence M. Hynes, Esq. Dennis Lyons
Sidley & Austin Arnold & Porter
1722 Eye Street, N.W. 555 12th Street, N.W.
Washington, D.C. 20006 Washington, D.C. 20004-1202
William A. Mullins Joseph R. Pomponio
Thomas J. Healey Federal Railroad Administration
Troutman & Sanders LLP 1120 Vermont Avenue, N.W., RCC-20
1300 Eye St., N.W., Suite 500 East Washington, D.C. 20590
Washington, D.C. 20005-3314
Paul Samuel Smith
U.S. Department of Transportation
400 7th St., S.W., C-30
Washington, D.C. 20590
------------
David Bono, Esq.
------------
1. CN filed a petition for review of the Board's decision on March 17, 2000
(D.C. Cir. No. 00-1118), as did BNSF (D.C. Cir. No. 00-1120) and the Western
Coal Traffic League (D.C. Cir. No. 00-1115). CN also intends to file a motion
with the Court of Appeals for stay of the Board's decision. The Board's action
on this stay petition may make unnecessary the relief to be sought from the
court.
2. See Union Pac. Corp. - Control and Merger - Southern Pac. Corp., STB Finance
Docket No. 32760 (Sub-No. 36), slip op. at 1 (STB served Oct. 29, 1999)
(granting stay).
3. See also Brae Corp. v. United States, 740 F.2d 1023, 1059 (D.C. Cir. 1984)
("discretionary powers surely do not evade the explicit requirements . . . that
reflect a specific set of Congressional concerns"), cert. denied, 471 U.S. 1069
(1985).
4. See Petition to Disclose Long-Term Rail Coal Contracts, Ex Parte No. 387
(Sub-No. 961), 1988 ICC Lexis 222 at *16 (RTP "represents broad policy goals to
be considered when performing our regulatory role. . . . [E]ach rail provision
is to be read with the RTP in mind.").
5. Global Van Lines v. ICC, 714 F.2d 1290, 1295-96 (5th Cir. 1983) (noting with
reference to predecessor to RTP that"general congressional exhortation to 'go
forth and do good,' without more, is not a proper foundation for the sound
development of administrative law").
6. As UP correctly stated to the Board in that case: "The way DeBruce is reading
new Section 721(b)(4) would mean that the section has vastly expanded the
Board's ability to regulate rail transportation as compared to the ICC's.
Indeed, under DeBruce's view of Section 721(b)(4) the Board could issue an
administrative injunction even if there were no violations of the Act's
substantive provision (the practical equivalent of eliminating the requirement
for a 'likelihood of success on the merits'). There is not a shred of support
in the statute or its legislative history to support the notion that such a
vast expansion of rail regulation was being enacted or intended. In fact, such
a construction would be contrary to the overall thrust of the ICC Termination
Act, which was to reduce regulation of railroads. . . ." Reply of Union Pacific
Railroad Company to Motion For Emergency Order, at 6-7 (Nov. 14, 1997)
(emphasis in original citing legislative history).
7. Prior to enactment of ICCTA, the ICC declined to defer decision in one
control proceeding to await the results of a battle between UP and BN for
control of Santa Fe because it could not be done consistently with the
then-existing statutory deadlines. Union Pac. Corp. -- Control -- Chicago &
N.W. Transp. Co. Finance Docket No. 32133, Decision No. 25 at 60-61 (ICC served
Mar. 7, 1995).
8. In conflict with its "distraction" rationale based on the BNSF/CN control
proceeding, the Board has invited pervasive distraction by proposing a
prolonged rulemaking that invites reopening of a number of issues that had been
settled by prior decisions.
9. There would be nothing new in a rulemaking proceeding to amend the Board's
rules for control proceedings during the pendency of an individual control
proceeding. That has occurred repeatedly since the Staggers Act. See, e.g., Ex
Parte No. 282 (Sub-No. 19) (STB served Nov. 24,1999) (terminating proposed
rulemaking in effect during BN/Santa Fe, UP/SP, CSX/NS and CN/IC proceedings);
Railroad Consolidation Procedures, 366 I.C.C. 75 (1982)) (adopting final rules
during pendency of UP/MP/WP proceeding). Moreover, similar risk is always
present in a control proceeding; witness, for example, the additional
requirements concerning new competition in the CSX/NS proceeding, and the
growth of requirements concerning environmental protection and safety.
10. E.g., California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508,
510 (1972). Action that trenches upon such constitutionally protected interests
is subject to a higher level of scrutiny and bears a heavier burden of
justification. As construed by the Board, section 721(b)(4) would constitute an
unlawful delegation of power for it embodies no intelligible principle to limit
the Board's exercise of authority.
11. The Decision (at 11) concluded with the boilerplate statement that it will
not significantly affect the environment or conservation of energy resources.
However, there is no evident basis for such an assertion about deferral of a
transaction that can be expected, e.g., to reduce the volume of truck traffic.
See 42 U.S.C. Sections 4321 et seq.
12. See, e.g., Hyde Park Partners, LP v. Connolly, 839 F.2d 837, 853 (1st Cir.
1988) (substantial and irreparable harm would arise from enforcement of statute
imposing one-year moratorium on corporate takeover attempt as sanction for
noncompliance with statute's disclosure provisions); San Francisco Real Estate
Investors v. Real Estate Inv. Trust, 701 F.2d 1000, 1002-03 (1st Cir. 1983);
see also Kennecott Corp. v. Smith, 637 F.2d 181, 188-89 (3d Cir. 1980) (delay
in control transaction "in and of itself constitutes irreparable injury"); cf.
Allegheny Energy, Inc. v. DQE, Inc., 171 F.3d 153, 164 (3d Cir. 1999) (loss of
opportunity to pursue merger is irreparable injury).
(c) 2000, Canadian National Railway Company
Legal Terms and Conditions
<PAGE>
[Francais][Search][Contact Us][Site Map][Home]
[CN-BNSF Combination]
[CN][BNSF]
Key Facts]
[News Center]
[Combination Benefits][Transaction Structure][Combined Rail Network]
[Combination Documents]
[Key Facts]
[Questions and Answers]
[Speeches and Presentations]
[CN Information and Biographies]
[BNSF Information and Biographies]
[Regional Benefits]
[Events Calendar]
Combination Benefits
Key Facts about the Combination
o End-to-end
o North America's largest rail network
o Unites the two most efficient railroads in North America
o 67,000 employees
o 50,000 route miles
o US$ 12.5 billion in revenues (C$ 18.5 billion)
o Expanded single-line service
o Total synergies of US $500 million to $600 million (C$750 million
to C$890 million) annually
Key Benefits for CN Shareholders
o All stock transaction
o Fair exchange ratio
o No new debt
o Improved earning potential
o Enhanced profitability
o High growth potential
o Accretive
o Tax efficient transaction
o Strong free cash flow
Terms & Features of the Combination
o A new company, North American Railways, Inc. will be created as a
companion company to CN to effect the combination.
o The transaction will be implemented through a recapitalization and
share exchange. CN shareholders will receive for each CN common
share a stapled security consisting of 1.05 CN voting shares and,
at their option, either 1.05 shares of North American Railways
common stock or 1.05 CN shares, exchangeable for 1.05 shares of
North American Railways common stock.
For each BNSF share, BNSF shareholders will receive a stapled
security consisting of one share of North American Railways common
stock and one CN voting share which will trade together as one
security.
o The transaction is designed to be tax efficient and fair for both
Canadian and American shareholders.
o Both CN and BNSF will maintain their current regional operating and
marketing focus. In addition, the structure of the transaction will
preserve the management, culture and commitment to customer service
of CN and BNSF, thereby minimizing integration risk.
(C) 2000, Canadian National Railway Company
Legal Terms and Conditions
<PAGE>
CN and North American Railways, Inc. have filed a registration statement on
Form F-4/S-4 with the United States Securities and Exchange Commission (SEC) in
connection with the securities to be issued in the combination. This filing
also includes the proxy statement for the shareholders' meeting to be held for
approval of the combination, investors should read this document and other
documents filed with the SEC by CN, BNSF and North American Railways, Inc.
about the combination because they contain important information. These
documents may be obtained for free at the SEC website, www.sec.gov, or the
website of the Canadian Securities Administrators www.sedar.com. Other filings
made by CN on forms 40-F and 6-K and CN's annual information form may be
obtained for free from the CN Corporate Secretary at 514.399.6569. Other
filings made by BNSF on forms 10-K, 10-Q and 8-K may be obtained for free from
the BNSF Corporate Secretary at 817.352.6856. For information concerning
participants in CN's solicitation of proxies for approval of the combination,
see "Certain Information Concerning Participants" filed by CN under Rule
14a-12. For information concerning participants in BNSF's solicitation of
proxies for approval of the combination, see "Certain Information Concerning
Participants" filed by BNSF on Schedule 14A under Rule 14a-12.
