CP Rail asks U.S. Justice Department to investigate rivals’ response to Norfolk bid

Canadian Pacific Railway Ltd. is asking the U.S. Justice Department to research whether its competitors are conspiring to bar its proposed acquisition of Norfolk Southern Corp., accusing them of “unprecedented” and “likely illegal” actions.

But two prominent U.S. rail lawyers say it is a difficult case to make, and CP’s rivals are most likely protected from any antitrust charges.

In instructions addressed towards the Justice Department’s antitrust division, CP argues that recent media reports indicate that its rivals are “organizing a collective campaign” to block CP’s proposed takeover offer, which Norfolk Southern has repeatedly rejected.

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Last week, Reuters quoted executives from CSX Corp., Union Pacific Corp. and BNSF as saying they are in opposition to the proposed merger and have met to go over it.

“We do not want Class 1 railroad mergers to happen,” Union Pacific CEO Lance Fritz was quoted as saying. “We’ll try everything within our power to make them not happen.”

CP spokesman Marty Cej said the company only decided to ask the Justice Department to weigh in after careful consideration.

“We get it that some competitors might not like the idea of a more effective competitor, but when statements are made in the press that others have gotten together to prevent mergers, we simply believed that was eyebrow-raising,” Cej said within an interview.

Michael McBride, a transportation lawyer at Van Ness Feldman LLP in Washington, D.C., said it’s unlikely that CP’s letter can lead to its competitors being charged with antitrust violations.



“I think this really is quite a long shot to expect the Justice Department to investigate this,” McBride said.

“I think the Justice Department would be inclined to go following the railroads if they were collectively setting rates or tos, refusing to haul some types of things or creating agreed-upon commercial limitations, but most likely not for something similar to this sort of advocacy.”

The Justice Department’s decision will rest on its interpretation of the Noerr-Pennington doctrine, which states that private entities are immune from antitrust laws so long as they’re lobbying the federal government.

CP says in its letter compared to doctrine doesn’t apply in this case, since it hasn’t yet reached an agreement with Norfolk Southern or filed an application with any government agency.

But McBride said the railways’ public comments are likely part of a broader advocacy effort that includes government lobbying and which may therefore be protected from any antitrust actions.

Another prominent U.S. rail lawyer said CP’s letter “smacks a little bit of desperation.”

“This seems to me to involve potential overreaching on CP’s part,” said the lawyer, who decided to speak only anonymously, because he did not want his comments to impact his practice.

In its letter towards the Justice Department, CP said its competition is more concerned about exactly what a merger means for their own profitability than what it’ll mean for the public.

“The collective communication means of these competitor railroads is also likely illegal because it is anticompetitive; it is an agreement to collectively work together to ban the development of competition by a new competitor, that is similar to an organization boycott in principle and intended effect,” it adds.

Tuesday’s letter is part of an escalating war of words between CP and Norfolk Southern, with many from the other Class 1 railroads publicly taking Norfolk Southern’s side. Norfolk had rejected CP’s latest bid of roughly US$31 billion in December, calling it “grossly inadequate” and some industry observers say that U.S. regulators are unlikely to allow a merger from the larger Class 1 railroads.

“I view this as another area of the war for public opinion,” said Tony Hatch, principal at railway consulting firm ABH Consulting. “Those guys sent it over the net and (CP CEO Hunter Harrison) sent it in having a sharp rejoinder.”

Cej denied this, saying the letter simply promises to draw the Justice Department’s attention to a worrying issue.

“This isn’t a PR campaign,” he explained. “This is transparency.”