[Federal Register Volume 72, Number 216 (Thursday, November 8, 2007)]
[Notices]
[Pages 63232-63236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21901]
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DEPARTMENT OF TRANSPORTATION
Surface Transportation Board
[STB Finance Docket No. 35081]
Canadian Pacific Railway Company, et al.--Control--Dakota,
Minnesota, & Eastern Railroad Corp., et al.
AGENCY: Surface Transportation Board, DOT.
ACTION: Decision No. 2 in STB Finance Docket No. 35081; Notice of
Receipt of Prefiling Notification.
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SUMMARY: The Surface Transportation Board (Board) has reviewed the
submission filed October 5, 2007, by Canadian Pacific Railway
Corporation (CPRC), Soo Line Holding Company, a Delaware Corporation
and indirect subsidiary of CPRC (Soo Holding), Dakota, Minnesota &
Eastern Railroad Corporation (DM&E), and Iowa, Chicago & Eastern
Railroad Corporation, a wholly owned rail subsidiary of DM&E (IC&E).
The submission is styled as an application seeking Board approval under
49 U.S.C. 11321-26 of the acquisition of control of DM&E and IC&E by
Soo Holding (and, indirectly, by CPRC). This proposal is referred to as
the ``transaction,'' and, for ease, CPRC, Soo Holding, DM&E, and IC&E
are referred to collectively as ``Applicants.''
The Board finds that the transaction would be a ``significant
transaction'' under 49 CFR 1180.2(b). The Board's rules at 49 CFR
1180.4(b) require that applicants give notice 2 to 4 months prior to
the filing of an application in a ``significant'' transaction. Because
Applicants did not file the required prefiling notification before
their October 5 submission seeking Board approval of this
``significant'' transaction, and did not pay the filing fee for a
``significant'' transaction, their submission cannot be treated as an
application at this time. The Board will, however, consider the October
5 submission a prefiling notification and publish notice of it in the
Federal Register, which has the effect of permitting Applicants to
perfect their application, and provide any
[[Page 63233]]
supplemental materials or information, on or after December 5, 2007.
When filing a prefiling notification, merger applicants in a
``significant'' transaction must propose a procedural schedule for
Board review of their proposed transaction. As part of their tender of
an application for a ``minor'' transaction, Applicants had proposed a
procedural schedule that tracks the statutory deadlines for processing
``minor'' applications. Because the Board finds the proposed
transaction to be ``significant,'' Applicants must file with the Board
no later than November 13, 2007, a revised proposed procedural schedule
that reflects the Board's determination that this is a ``significant''
transaction. The Board will promptly seek public comments on a proposed
procedural schedule, with comments due 10 days after publication of the
proposed procedural schedule in the Federal Register. Section 1180.4(b)
also calls for merger applicants to indicate in their prefiling
notification the year to be used for the impact analysis required in
``significant'' transactions. In their October 5 submission, Applicants
cite the 2005 Carload Waybill Sample in their market analysis. The
Board therefore designates 2005 as the year to be used for impact
analysis in the application. In addition, Applicants must submit the
difference between the filing fee for a ``minor'' transaction (which
Applicants already have paid) and the fee for a ``significant''
transaction when they perfect their application on or after December 5,
2007.
DATES: Applicants must, by November 13, 2007, file a proposed
procedural schedule with the Board. In addition, Applicants must submit
the difference between the filing fee for a ``minor'' transaction and
the fee for a ``significant'' transaction with or without supplemental
information, on or after December 5, 2007.
ADDRESSES: Any filing submitted in this proceeding must be submitted
either via the Board's e-filing format or in the traditional paper
format as provided for in the Board's rules. Any person using e-filing
should attach a document and otherwise comply with the instructions
found on the Board's Web site at http://www.stb.dot.gov at the ``E-
FILING'' link. Any person submitting a filing in the traditional paper
format should send an original and 10 paper copies of the filing (and
also an electronic version) to: Surface Transportation Board, 395 E
Street, SW., Washington, DC 20423-0001. In addition, one copy of each
filing in this proceeding must be sent (and may be sent by e-mail only
if service by e-mail is acceptable to the recipient) to each of the
following: (1) Terence M. Hynes (representing CPRC), Sidley Austin LLP,
1501 K Street, NW., Washington, DC 20005; and (2) William C. Sippel
(representing DM&E), Fletcher & Sippel, 29 North Wacker Drive, Suite
920, Chicago, IL 60606.
FOR FURTHER INFORMATION CONTACT: Julia M. Farr, (202) 245-0359.
[Assistance for the hearing impaired is available through the Federal
Information Relay Service (FIRS) at 1-800-877-8339.]
SUPPLEMENTARY INFORMATION: CPRC is a Canadian corporation whose stock
is publicly held and traded on the New York and Toronto stock
exchanges. CPRC and its U.S. rail carrier subsidies, Soo Line Railroad
Company (Soo) and Delaware and Hudson Railway Company, Inc. (D&H),
operate a transcontinental rail network over 13,000 miles in Canada and
the United States. (CPRC, Soo, and D&H are referred to collectively as
``CPR.'') CPR serves the principal business centers of Canada and 14
U.S. states in the Northeast and Midwest. The major commodities
transported by CPR include bulk commodities such as grain, coal,
sulfur, and fertilizers; merchandise freight including finished
vehicles and automotive parts, forest products, industrial products,
and consumer products; and intermodal traffic. In fiscal year 2006, the
freight revenues of CPR were approximately $4.4 billion.
DM&E is a privately held Class II rail carrier headquartered in
Sioux Falls, SD. DM&E and its subsidiary, IC&E, operate over 2,500
miles of rail lines serving eight U.S. states, including the major
Midwestern gateways of Chicago, IL, Minneapolis/St. Paul, MN, and
Kansas City, MO. Together, DM&E and IC&E interchange rail traffic with
all seven U.S. Class I railroads.
DM&E was created in 1986 from lines formerly owned by Chicago and
North Western Transportation Company (CNW) in South Dakota, Minnesota,
and Iowa. In 1996, DM&E acquired CNW's Colony Line, running from
Eastern Wyoming through Western South Dakota and into Northwestern
Nebraska. DM&E subsequently acquired the lines now operated by IC&E
from the former Iowa and Minnesota Rail Link in 2002. IC&E owns or
operates approximately 1,322 route miles of rail lines that were once
part of the CPR system, in Illinois, Minnesota, Missouri, and
Wisconsin.
In 2006, the Board granted DM&E authority to construct and operate
282 miles of new railroad lines to serve coal origins in Wyoming's
Powder River Basin (PRB). DM&E states that it is currently pursuing the
process of acquiring the right-of-way needed to build the PRB line. It
must execute agreements with PRB mines on terms for operations by DM&E
over their loading track and facilities. DM&E must also secure
sufficient contractual commitments from prospective coal shippers to
route their traffic over the PRB line to justify the large investment
to build it. Finally, DM&E must arrange financing for the project and
comply with the environmental conditions imposed by the Board. If the
proposed transaction is approved, CPR states that it plans to work
diligently with DM&E to accomplish these necessary prerequisites to
construction of the proposed PRB line, assuming that the decision is
made to build it.
The proposed transaction for which Applicants seek approval
involves the acquisition of control of DM&E and IC&E by Soo Holding
(and, indirectly, by CPRC).\1\ On October 4, 2007, Soo Line Properties
Company, a Delaware corporation and wholly owned subsidiary of Soo
Holding (Soo Properties), merged with and into DM&E, subject to the
voting trust described below. At the time of closing, DM&E shareholders
received cash consideration of approximately $1.48 billion, subject to
certain working capital adjustments in accordance with the Agreement
and Plan of Merger (Merger Agreement). As part of the $1.48 billion
paid at closing, DM&E and IC&E repaid certain obligations to third
party creditors, including $250 million to the Federal Railroad
Administration (FRA). The Merger Agreement provides for future
contingent payments by CPR to DM&E's shareholders of up to
approximately $1 billion. Specifically, an additional payment of $350
million will become due if construction starts on the PRB line prior to
December 31, 2025. Further contingent payments of up to approximately
$707 million will become due upon the movement of specified volumes of
PRB coal over the PRB line prior to December 31, 2025.
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\1\ In Decision No. 1 in this proceeding, served September 21,
2007, the Board issued a Protective Order to facilitate the
discovery process and establish appropriate procedures for the
submission of evidence containing confidential or proprietary
information.
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Public Interest Considerations. Applicants contend that the
transaction would not result in any lessening of competition, creation
of a monopoly, or restraint of trade in freight surface transportation
in any region of the United States. Rather, Applicants state that CPR's
acquisition of DM&E and IC&E would be strongly pro-competitive. Most
significantly,
[[Page 63234]]
Applicants note that the transaction would create new single-system
rail options where none currently exist. Applicants contend that CPR's
plan to invest $300 million in capital improvements on DM&E's and
IC&E's existing lines would enhance safety and the efficiency of their
operations, thereby strengthening the competitive ability of DM&E and
IC&E. Applicants state that this investment would allow DM&E and IC&E
to upgrade track, bridges, and other rail facilities and to bring their
safety performance closer to CPR standards, thus improving the fluidity
of their train operations. The transaction would restore CPR's direct
access to the Kansas City gateway, enhancing their ability to compete
effectively for rail traffic moving between CPR's current network and
points in the U.S. Southwest and Mexico. Applicants assert that the
transaction would enable CPR to assist DM&E in possibly bringing to
fruition its proposal to introduce a third rail competitor to the PRB,
which is currently served by UP and BNSF.
Independent Voting Trust. On October 4, 2007, Soo Properties was
merged with and into DM&E. At that time, all the common shares of DM&E
were deposited into an independent voting trust, pending Board approval
of the proposed transaction, in order to avoid unlawful control of DM&E
and IC&E in violation of 49 U.S.C. 11323. On or after the effective
date of a Board final order authorizing the transaction, the voting
trust would be terminated; DM&E's shares would be transferred to Soo
Holding; and DM&E would become a wholly owned subsidiary of Soo Holding
(and an indirect subsidiary of CPRC). In the event that the Board does
not approve the transaction, Soo Holding would use its reasonable best
efforts to sell or direct the trustee to sell the trust interests to
one or more eligible purchasers or otherwise dispose of the trust
interests during a period of 2 years after such a decision becomes
final.
With the exception of the Board's final approval of the
transaction, all conditions precedent to closing of the merger have
been satisfied.
Environmental Impacts. Applicants contend that the transaction
would not result in any increases in rail traffic, train operations, or
yard activity that would exceed the Board's thresholds for
environmental review in 49 CFR 1105.7(e)(5). Applicants therefore
assert that the transaction does not require the preparation of
environmental documentation under 49 CFR 1105.6(b)(4). However,
Applicants plan to prepare a Safety Integration Plan (SIP) under the
Board's rules at 49 CFR 1106 and 49 CFR 1180.1(f)(3) setting out how
they would ensure that safe operations are maintained throughout the
acquisition-implementation process, if the proposed transaction is
approved.
In regard to the environmental impacts of the transportation of
DM&E PRB coal trains over the lines of IC&E and/or CPR, Applicants
propose that the Board defer any required analysis of the environmental
impacts of the movement of DM&E PRB coal trains over the lines of IC&E
and/or CPR because definitive information regarding the likely volume,
destination, and routing of DM&E PRB coal trains beyond DM&E's existing
line remains speculative.
The City of Winona, Mayo Clinic, and BNSF Railway Company (BNSF)
have filed comments on Applicants' proposed environmental approach.
Applicants replied to BNSF's comments. The Board will consider these
comments in its review of the transaction; there is no need for the
commenters to refile those submissions.
Significant Transaction. The statute and our regulations treat a
transaction that does not involve two or more Class I railroads
differently depending upon whether or not the transaction would have
``regional or national significance.'' Compare 49 U.S.C. 11325(a)(2),
(c) (addressing ``significant'' transactions) with 49 U.S.C.
11325(a)(3), (d) (addressing ``minor'' transactions). Under our
regulations, at 49 CFR 1180.2, a transaction is to be classified as
``significant'' unless the application shows on its face (1) that the
transaction clearly would not have any anticompetitive effects, or (2)
that any anticompetitive effects would clearly be outweighed by the
anticipated contribution to the public interest in meeting
``significant'' transportation needs.
A transaction classified as ``significant'' must meet different
procedural and informational requirements than one classified as
``minor.'' For example, Applicants are required to submit more detailed
information regarding competitive effects, operating plans and other
issues for a ``significant'' transaction than for a ``minor''
transaction. 49 CFR 1180.4(c)(2). Responsive applications are not
permitted for a ``minor'' transaction but are allowed for a
``significant'' transaction. 49 CFR 1180.4(d). The time limit for Board
review is shorter for a ``minor'' transaction and prefiling
notification is not required. 49 U.S.C. 11325(d); 49 CFR 1180.4(b).
Finally, the filing fee for a ``significant'' transaction is higher
than the fee for a ``minor'' transaction. 49 CFR 1002.2.
Applicants contend that this transaction should be classified as
``minor.'' First, they argue that the transaction is pro-competitive
due to its anticipated benefits, including (1) creating new single-
system rail options where none currently exist, (2) enhancing the
safety and efficiency of DM&E's and IC&E's operations through CPR's
plan to invest $300 million in capital improvements on DM&E's and
IC&E's existing lines, (3) restoring CPR's direct access to the Kansas
City gateway, enhancing its ability to compete effectively for rail
traffic moving between CPR's current network and points in the U.S.
Southwest and Mexico, and (4) enabling CPR to assist DM&E in possibly
bringing to fruition its proposal to introduce a third rail competitor
to the PRB, which is currently served by UP and BNSF.
Second, Applicants assert that the transaction would not result in
any lessening of effective rail competition because the networks of
Applicants are largely complementary, not competitive. Applicants point
to the competitive analysis prepared by their expert as confirmation
that none of the stations commonly served by Applicants would lose
competitive rail service as a result of the proposed transaction due to
a variety of station-specific reasons, including the existence of
another competitive option or the fact that one or the other of
Applicants is not actively serving the station today. Applicants also
state that vertical anticompetitive effects would be non-existent
because virtually all of the shortlines that interchange with DM&E have
many other interchange routing options.
Mayo Clinic, Iowa Northern Railway Company (IANR), and the Iowa
Department of Transportation (IDOT) have filed comments taking issue
with Applicants' proposed designation of the transaction as ``minor.''
The Mayo Clinic suggests that the Board should compel Applicants to
submit ``verifiable documentation regarding DM&E's current revenues to
ensure that DM&E does not meet Class I status,'' and that, in any
event, this transaction would propel DM&E into Class I status.\2\ IDOT
[[Page 63235]]
argues that the geographic scope of the transaction means that the
merger ``clearly has regional transportation significance,'' and it
states that applying the timetable for a ``significant'' transaction
would give it sufficient time to analyze the effects of the deal. IANR
argues that Applicants provided inadequate competitive analysis to show
clearly that the transaction would not have any anticompetitive
effects, or that any anticompetitive effects would clearly be
outweighed by the public interest benefits. They maintain that use of
larger market areas such as Business Economic Areas (BEAs) would have
increased the number of 2-to-1 and 3-to-2 cases of potential loss of
competition; that the market analysis failed to consider current
competition from extending rail connections or from intermodal truck-
rail competition; that the market analysis failed to identify potential
vertical foreclosure of short line railroads; and that the market
analysis did not sufficiently assess markets where Applicants do not
``compete actively.''
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\2\ Specifically, Mayo Clinic argues that Applicants' claim that
the transaction is ``minor'' rather than ``substantial'' serves ``to
limit the information they had to provide in their application'' and
allows ``Applicants to avoid scrutiny of various competitive
considerations, including whether the proposed transaction will
foster a major market extension free and clear of Board scrutiny.''
Mayo Clinic's argument is not well taken because Applicants
submitted additional information in their application to comply with
the requirements for ``significant'' transactions, including a
market analysis and a more detailed Operating Plan. Furthermore, the
Board will not require Applicants to file verification documents as
to DM&E's revenues in this proceeding given the established
procedures set forth at 49 CFR 1201 General Instructions 1-1(2) for
the classification of railroads.
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In response to IANR's comments, Applicants argue that their
competitive analysis is sufficient to support a ``minor'' designation.
Applicants assert that they provided a station-by-station review of
competitive effects, and also provided information about every
shortline that could be impacted by this transaction. Moreover,
Applicants assert that they have provided the information that would be
required if the transaction were classified as ``significant,'' so that
their October 5 submission should be accepted as a complete application
regardless of how the transaction is classified.
The purpose of the test articulated in section 1180.2 of the
Board's regulations is to allow the Board to lessen the regulatory
burden when ``a determination can clearly be made, at the time the
application is filed, that the transaction passes muster under'' the
statute. See RR. Consolidation Proced. of Significant Transactions, 9
I.C.C.2d 1198, 1200 (1993) (emphasis in original). It permits the Board
to select the most appropriate procedures to apply to a proposed
transaction. It is not the purpose of section 1180.2(b) to force the
Board to make an advance determination on the extent of the likely
competitive effects or to weigh those effects against the public
benefits in cases where more information would be helpful. (Any broader
reading of the regulation could effectively require a preliminary
determination on the ultimate issue in the case even where the Board
regards such a determination as premature.)
Here, although Applicants' submission states that no currently
served shipper would become captive as a result of the transaction
(i.e., no shipper would have its competitive options reduced from two
carriers pre-transaction to one carrier post-transaction), it does not
clearly establish that there would be no other anticompetitive effects
that might result from the transaction. For example, it does not
contain information that rules out the possibility that there are some
shippers whose competitive options would be reduced post-transaction.
Nor does it provide details regarding those stations that both
Applicants could serve but at which only one Applicant derived revenue
from originating or terminating traffic in 2005.
Applicants' submission asserts that there are anticipated benefits
associated with the transaction.\3\ Based on the information we have
about the possible competitive impacts today, we are unable to conclude
at this stage that such impacts would clearly be outweighed by the
potential benefits. However, our classification of this transaction as
``significant'' should not be read as any indication of how we might
ultimately assess and weigh the benefits and any impacts on competition
after development of a more complete record.
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\3\ We do not consider the potential for introduction of another
competitor into the PRB as one of those benefits. Applicants state
that they have not yet determined whether they would proceed with
the construction of that line if this merger is approved.
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The Board considers each proposed transaction based on its unique
factual circumstances and our regulatory criteria for classifying
transactions. Had Applicants' submission satisfied the criteria for a
``minor'' designation here, the transaction would have been classified
as such even if it differed substantially from other transactions
designated as ``minor.'' We also reject arguments that the Board should
consider this to be a ``major'' transaction based on the notion that
DM&E and IC&E combined might someday have revenues for 3 consecutive
years that would qualify for Class I status.
The Board finds the proposed transaction to be ``significant'' and
is unable to accept the submission as an application now, due to
Applicants' failure to provide prefiling notification and pay the
filing fee applicable for a ``significant'' transaction. Accordingly,
the Board will treat Applicants'' October 5 submission as a prefiling
notification. Furthermore, the Board designates 2005 as the year to be
used for impact analysis because Applicants use the 2005 Carload
Waybill Sample in the market analysis in their submission.
Applicants may perfect their application by submitting the
remainder of the fee on or after December 5, 2007. Pursuant to section
1180.4(b)(2)(v), Applicants may perfect their application with or
without supplemental information because they have already submitted
sufficient information to substantially comply with the informational
requirements for a ``significant'' transaction. Others who have already
participated in this proceeding need not resubmit their previous
comments, as the Board will consider what has already been submitted to
the extent it remains relevant once an application is perfected.
Procedural Schedule. The Board's determination that this
transaction is ``significant'' necessitates a different procedural
schedule than that proposed by Applicants. Metra, Mayo Clinic, and IANR
submitted separate filings commenting on Applicants' proposed
procedural schedule.\4\ Some of the concerns expressed by these parties
are moot, given the Board's determination that the transaction is
``significant.''
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\4\ In its October 18, 2007 reply, Metra requests that the Board
delay the due date for the submission of comments, protest, requests
for conditions, other opposition, and evidence an additional 2 weeks
until January 15, 2008, to allow it sufficient time to negotiate a
settlement with Applicants to resolve questions regarding the
potential impact the transaction could have on Metra's operations
between Elgin, IL, and Chicago over its line, which it shares
between Pingree Grove, IL, and Chicago with CPRC and IC&E. Likewise,
Mayo Clinic, in its October 24, 2007 reply, states that it supports
the request to extend the due date to allow it sufficient time for
meaningful negotiations with CPRC.
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In its October 26, 2007 comments, IANR proposes a 270-day schedule
starting on December 4, 2007, based on the schedule for a
``significant'' transaction. In their reply, filed on October 29, 2007,
Applicants request that, if the Board treats the transaction as
``significant,'' the Board accept as their application the submission
tendered on October 5, 2007, and establish a procedural schedule that
would allow the transaction to be approved within the statutory
deadline.
Applicants must file with the Board no later than November 13,
2007, a revised proposed procedural schedule that reflects the Board's
determination that this is a ``significant'' transaction. The Board
will promptly seek public comments on a proposed procedural
[[Page 63236]]
schedule, with comments due 10 days after publication of the proposed
procedural schedule in the Federal Register.
Filing Requirements. Any document filed in this proceeding must be
filed either via the Board's e-filing format or in the traditional
paper format as provided for in the Board's rules. Any person using e-
filing should attach a document and otherwise comply with the
instructions found on the Board's Web site at http://www.stb.dot.gov at
the ``E-FILING'' link. Any person filing a document in the traditional
paper format should send an original and 10 paper copies of the
document (and also an electronic version) to: Surface Transportation
Board, 395 E Street, SW., Washington, DC 20423-0001.
Service Requirements. One copy of each document filed in this
proceeding must be sent to each of the following (any copy may be sent
by e-mail only if service by e-mail is acceptable to the recipient):
(1) Terence M. Hynes (representing CPRC), Sidley Austin LLP, 1501 K
Street, NW., Washington, DC 20005; and (2) William C. Sippel
(representing DM&E), Fletcher & Sippel, 29 North Wacker Drive, Suite
920, Chicago, IL 60606.
This action will not significantly affect either the quality of the
human environment or the conservation of energy resources.
It is ordered:
1. The submission filed by Applicants on October 5, 2007, in STB
Finance Docket No. 35081 is treated as the prefiling notification of
the anticipated application.
2. Applicants are directed to supplement the prefiling notification
by submitting a revised proposed procedural schedule with the Board no
later than November 13, 2007, that is consistent with the Board's
determination that this is a ``significant'' transaction.
3. This decision is effective on November 2, 2007.
Decided: November 2, 2007.
By the Board, Chairman Nottingham, Vice Chairman Buttrey, and
Commissioner Mulvey.
Vernon A. Williams,
Secretary.
[FR Doc. E7-21901 Filed 11-7-07; 8:45 am]
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