CALGARY, Jan. 19, 2016 /PRNewswire/ - Canadian Pacific
(TSX: CP) (NYSE: CP) said today that it has submitted a letter to
the U.S. Department of Justice, asking it to review recent actions
by a number of major U.S. railroads who have stated publicly that
they are organizing a collective campaign to block significant
mergers in the railroad industry, including CP's proposed offer for
Norfolk Southern Corp. (NS).
According to statements reported in the press, some of these
railroads are concerned about the damage that increased competition
from a CP-NS combination would have on "shareholder value" and on
their own profitability.
CP believes it is unfortunate that the company must take the
very serious step of writing to the Department of Justice but
ultimately concluded the unprecedented action of major competitors
organizing to block a new entrant from enhancing competition to the
U.S. merited the attention of the antitrust authorities. CP has
confidence in the Surface Transportation Board and its regulatory
process to analyze CP's proposal impartially once an application is
filed, and is disappointed that others appear not to share such
confidence and have resorted to collective action to ensure no
merger occurs.
The full text of that letter is below.
United States Department of Justice
950 Pennsylvania Avenue NW
Washington, DC 20530
Attention:
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William Baer,
Assistant Attorney General, Antitrust Division
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David Gelfand, Deputy
Assistant Attorney General, Antitrust Division
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Renata Hesse, Deputy
Assistant Attorney General, Antitrust Division
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Dear Messrs. Baer and Gelfand and Ms. Hesse:
We are writing on behalf of Canadian Pacific Railway with
respect to press statements from some of the largest US railroad
companies indicating that they are working closely with each other
to block Canadian Pacific's proposed merger with Norfolk
Southern. We are deeply concerned that these actions are
being taken for the primary purpose of restraining trade in
violation of Section 1 of the Sherman Act, and not for any
legitimate purpose that would benefit the public or enhance
competition in the US railroad industry.
Canadian Pacific announced a proposal to acquire Norfolk
Southern in November 2015, and has
made several revised proposals since then, each of which has been
rebuffed by the Norfolk Southern board. As Canadian Pacific
has stated repeatedly, it believes its proposal to acquire Norfolk
Southern will have a significantly pro-competitive outcome.
There is minimal overlap between the track networks of the two
companies, and instead the merger would be a market-extension
creating an end-to-end transcontinental solution for customers in
large parts of the US and Canada. This point-to-point
connectivity would increase the efficiency of the existing
infrastructure — by allowing through-shipments across and between
both countries — and introduce options for rerouting traffic around
critical areas of congestion like Chicago. Importantly,
Canadian Pacific has publicly committed to unilaterally cease using
"bottleneck pricing" for customers, instead quoting rates for
whichever gateway a shipper requests, and also provide "modified
terminal access" to allow other railroads to use CP tracks in
terminal areas where CP's service is not adequate and/or rates are
non-competitive. All of these aspects of CP's proposal should
significantly enhance competition and improve rail efficiencies for
customers everywhere. A copy of a recent Canadian Pacific
presentation explaining the offer and its competitive benefits is
attached to this letter.
In response, a number of the large (Class 1) US railroads appear
to have begun a concerted effort to block CP's proposed acquisition
through a widespread campaign of meetings and solicitations with
customers, the media, and other interested parties. The fact
that these major railroads have joined to work so feverishly
against CP's proposal speaks volumes about their concerns regarding
the impact the transaction would have on their competitive
position. In fact, one CEO was quoted as saying that the
merger "could actually be destructive of [their] shareholder
value", and another CEO publicly opined that a CP/Norfolk Southern
merger "would make it hard for . . . CSX to survive alone."
Whether or not that latter statement is accurate, it really
illustrates the level of enhanced competition these other railroads
fear from a CP/Norfolk Southern merger. They are—with good
reason—concerned that the proposed Norfolk Southern acquisition
will lead to a more competitive industry: with the combined
efficiencies, cost-savings, and the upgraded competitive
advantages, the combined companies will be much better positioned
to price competitively, improve service quality, and create the
type of competitive environment that CP's competitors are afraid
of. But fear of competition does not justify the collective
action of competitors.1 As the
Department of Justice has said on many occasions, the antitrust
laws are designed to protect consumers against unfair actions in
restraint of trade, not to protect companies against price and
other competition from their competitors.
The collective communication strategy of these competitor
railroads is also likely illegal because it is
anticompetitive: it is an agreement to collectively work
together to prohibit the introduction of competition by a new
competitor, which is akin to a group boycott in principle and
intended effect. Such conduct is plainly anticompetitive and
unlawful. At a minimum, they are not protected by
Noerr-Pennington or any other defense or immunity.
Indeed, Noerr-Pennington does not apply here for at least
several reasons. First, the collective action has arisen
prior to any transaction with Norfolk Southern having been
agreed, let alone any application filed with a government agency,
and thus before there was any government to be petitioned, before
any judicial or administrative proceedings had begun, and before
there was any need to protect freedom of speech or guarantee access
to government. And although certain interested parties have
submitted comments to the Surface Transportation Board concerning
the proposed merger, the Board has made clear that "[a]t this time,
there is no proceeding before the agency related to a merger of CP
and NS." Indeed, in response to several of these comments,
the Board indicated that it would be premature for it to take a
position on the proposed merger since no application has been
filed, and thus "there are no proceedings . . . related to this
potential merger." In any event, the recent public statements
by some of the railroads strongly suggest pre-existing collective
agreement and action, such as the statement by one CEO that the
competitor railroads have met more than once recently, but that
they have not reached a "new consensus" because "we were all
against mergers to begin with." Any competitor communications
that occurred so far in advance of any acquisition of Norfolk
Southern would not qualify for immunity because they necessarily
occurred outside the umbrella of protection afforded by
Noerr-Pennington.
Second, Noerr-Pennington does not immunize statements to
and the petitioning of private parties—parties such as customers,
shareholders and the media. Here, it is clear that the
competitor railroads are engaged in an active and coordinated
campaign, both in the press and, according to comments in the
press, "behind the scenes", against the proposed Norfolk Southern
acquisition—and appear to have collectively agreed to use the same
talking points with customers, shareholders, and the media.
Any agreement to influence these private parties is not protected
by the Noerr-Pennington doctrine, and the collective efforts
of these competitor railroads are intended to and (if left
unchecked) might have the desired effect of preventing
competition.
We have attached several news articles detailing these actions
and statements by various U.S. railroads. We believe strongly
that Canadian Pacific's proposed acquisition of Norfolk Southern
would benefit competition and provide better services to customers
at competitive prices, and we think that the actions by CP's
competitors in opposition to that goal merit a serious and
impartial review by the US government authorities responsible for
antitrust enforcement.
If we can be of any assistance to you or provide any additional
information, please do not hesitate to contact Kevin J. Arquit (212-455-7680) or Matt J. Reilly (202-636-5566), each of Simpson
Thacher & Bartlett LLP.
Very truly yours,
Matthew J. Reilly
cc:
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Surface
Transportation Board
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Kevin J.
Arquit
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Forward Looking Statement
This news release contains
certain forward-looking information within the meaning of
applicable securities laws relating, but not limited, to CP's
proposal to NS regarding a possible business combination, the
anticipated results and benefits of the proposed transaction and
matters relating to regulatory approvals and changes. This
forward-looking information also includes, but is not limited to,
statements concerning expectations, beliefs, plans, goals,
objectives, assumptions and statements about possible future
events, conditions, and results of operations or performance.
Forward-looking information may contain statements with words or
headings such as "financial expectations", "key assumptions",
"anticipate", "believe", "expect", "plan", "will", "outlook",
"should" or similar words suggesting future outcomes.
Undue reliance should not be placed on forward-looking
information as actual results may differ materially from the
forward-looking information. Forward-looking information is not a
guarantee of future performance. By its nature, CP's
forward-looking information involves numerous assumptions, inherent
risks and uncertainties that could cause actual results to differ
materially from the forward-looking information, including but not
limited to the following factors: the ability of the parties to
agree to the terms of a proposed transaction; the ability of the
parties to obtain the required regulatory approvals; the ability to
recognize the financial and operational benefits of the
transaction; changes in business strategies; general North American
and global economic, credit and business conditions; risks in
agricultural production such as weather conditions and insect
populations; the availability and price of energy commodities; the
effects of competition and pricing pressures; industry capacity;
shifts in market demand; changes in commodity prices; uncertainty
surrounding timing and volumes of commodities being shipped via CP;
inflation; changes in laws and regulations, including regulation of
rates; changes in taxes and tax rates; potential increases in
maintenance and operating costs; uncertainties of investigations,
proceedings or other types of claims and litigation; labour
disputes; risks and liabilities arising from derailments;
transportation of dangerous goods; timing of completion of capital
and maintenance projects; currency and interest rate fluctuations;
effects of changes in market conditions and discount rates on the
financial position of pension plans and investments; and various
events that could disrupt operations, including severe weather,
droughts, floods, avalanches and earthquakes as well as security
threats and governmental response to them, and technological
changes. The foregoing list of factors is not exhaustive.
These and other factors are detailed from time to time in
reports filed by CP with securities regulators in Canada and the United States. Reference
should be made to "Management's Discussion and Analysis" in CP's
annual and interim reports, Annual Information Form and Form 40-F.
Readers are cautioned not to place undue reliance on
forward-looking information. Forward-looking information is based
on current expectations, estimates and projections and it is
possible that predictions, forecasts, projections, and other forms
of forward-looking information will not be achieved by CP. Except
as required by law, CP undertakes no obligation to update publicly
or otherwise revise any forward-looking information, whether as a
result of new information, future events or otherwise.
Rule 425 Disclosure
This announcement is neither an
offer to purchase or exchange nor a solicitation of an offer to
sell securities. Subject to future developments, additional
documents regarding the proposed transaction may be filed with the
SEC. Investors and security holders are urged to read such
disclosure documents regarding the proposed transaction, if and
when they become available, because they will contain important
information. Investors and security holders may obtain a free
copy of the disclosure documents (when they are available) and
other documents filed by CP with the SEC at the SEC's website at
www.sec.gov. The disclosure documents and these other
documents may also be obtained for free from CP at
http://www.cpr.ca/en/investors or by directing a request to
Canadian Pacific Railway Limited, 7550 Ogden Dale Road S.E.,
Calgary, Alberta, Canada, T2C 4X9,
Attention: Office of the Corporate Secretary.
CP and its directors, executive officers and other employees may
be deemed to be participants in any solicitation of CP or NS
shareholders in connection with the proposed transaction.
Information about CP's executive officers and directors is
available in CP's Annual Report on Form 40-F for the year ended
December 31, 2014, which was filed
with the SEC on February 23, 2015.
Additional information about the interests of potential
participants will be included in any proxy statement filed in
connection with the proposed transaction.
About Canadian Pacific
Canadian Pacific
(TSX:CP)(NYSE:CP) is a transcontinental railway in Canada and the
United States with direct links to eight major ports,
including Vancouver and
Montreal, providing North American
customers a competitive rail service with access to key markets in
every corner of the globe. CP is growing with its customers,
offering a suite of freight transportation services, logistics
solutions and supply chain expertise. Visit cpr.ca to see the rail
advantages of Canadian Pacific.
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Ironically, the CEO
of Union Pacific, Lance Fritz, personally filed a statement with
the Surface Transportation Board in April 2011 arguing in
favor of rail consolidation, asserting that Union Pacific's
series of mergers with other railroads enabled Union Pacific to
create "an efficient system removing bottlenecks and inefficient
operations, including unnecessary interchanges, and increasing
single-line service." According to Mr. Fritz, Union Pacific
has "been able to provide safer, better, and expanded service
because of [its] ability to leverage the economics of
consolidation." Mr. Fritz reiterated his statements to the
Surface Transportation Board on March 1, 2013.
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SOURCE Canadian Pacific