U.S. Approves a Merger Between Two Big North American Railroads

A federal regulator on Wednesday approved a Canadian freight railroad’s plan to buy an American company, a nearly $32 billion deal that will make the railroad the first operating across North America.

In approving the deal, the regulator, the Surface Transportation Board, said the new single-line service will shift about 64,000 truckloads a year to rail from the roads, and add more than 800 new union operating positions in the United States. The Surface Transportation Board said the merger would not reduce competition.

“This merger will create the first railroad providing single-line service spanning Canada, the United States and Mexico,” the Surface Transportation Board wrote in its decision.

Under the merger plan, Canadian Pacific, the sixth-largest freight railroad by revenue operating in the United States, agreed to buy the next largest carrier, Kansas City Southern. The combined railroad will not overtake the fifth-largest carrier, Canadian National.

The deal is the first merger between two major railroads since the 1990s. It also represents the culmination of a yearslong campaign by Canadian Pacific to grow. The company had unsuccessfully pursued mergers with several other large railroads, including Norfolk Southern and CSX, over the past decade.

The decision came amid mounting pressure to reject the deal. In a letter to the Surface Transportation Board in January, the Justice Department said that it had “serious concerns” about industry consolidation and asked the regulator to carefully scrutinize the deal. This month, Senator Elizabeth Warren, Democrat of Massachusetts, asked the transportation board to block the deal, saying it would reduce competition and could result in higher shipping costs, fewer jobs and more service disruptions.

“This merger clearly fails the public interest test, and accordingly, I ask S.T.B. to uphold the law and deny it,” she wrote in a letter to the agency.

In a detailed review in January, the transportation board found that the merger would have had little negative effect on freight rail safety, air quality or other environmental concerns. Most environmental effects of the deal “would be negligible, minor and/or temporary,” though some communities could see heightened air or noise pollution, it stated.

The two companies first announced plans to merge in March 2021. The following month, another railroad, Canadian National, issued a competing bid, which Kansas City Southern seriously entertained. But that rival deal fell apart.

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