UPDATE 1-U.S. military: CP, Norfolk Southern merger could affect defense

Thu Apr 7, 2016 4:23pm EDT
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(Adds details from letter, background, context, comment from CP)

By Nick Carey

CHICAGO, April 7 (Reuters) - The U.S. military on Thursday raised concerns with a federal rail regulator over the voting trust Canadian Pacific has proposed as part of its takeover bid for Norfolk Southern and said the deal could adversely affect the country's national defense.

In a letter to the U.S. Surface Transportation Board (STB) dated April 7, the Department of Defense said CP's proposal to have its chief executive, Hunter Harrison, run Norfolk Southern as part of the voting trust "could prove to be untenable due to the appearance of common control" of the two railroads.

CP, which is Canada's second-largest railroad, disclosed a $28 billion offer for Norfolk Southern in mid-November. The Calgary-based company has said a merger would result in savings of more than $1.8 billion annually.

Norfolk Southern has rebuffed all advances from CP.

The letter comes as a response to a March 2 petition from CP to the STB seeking a "declaratory order" on its voting trust proposal. The idea would be to place both railroads in a trust - if they agreed to merge - pending a review by the STB. Under the STB's merger rules, common control is not allowed.

The Department of Defense said putting Harrison, a septuagenarian railroading legend, at the helm of Norfolk Southern while a review was underway would put him in a position in which he "must make business decisions with potentially competing interests."

The Department said in the letter that "it is too early to determine" whether a merger would degrade national defense, but said "the potential certainly exists."   Continued...