CN Plans to Sell KCS Line in Louisiana to Eliminate System Overlap

During an industry conference on Wednesday, CN and KCS officials also revealed the name of the combined system: Canadian National. Photo by Steve Barry.

CN Plans to Sell KCS Line in Louisiana to Eliminate System Overlap

By Justin Franz

MONTREAL — Canadian National CEO JJ Ruest said Wednesday that selling about 70 miles of track between New Orleans and Baton Rouge, Louisiana, will eliminate any system overlap that could concern the U.S. Surface Transportation Board as it reviews the Canadian road’s plan to take over Kansas City Southern. 

On Wednesday morning, Ruest and KCS CEO Pat Ottensmeyer spoke during the annual Wolfe Research Global Transportation & Industrials Conference, which also featured Canadian Pacific CEO Keith Creel, whose company was spurned last week when KCS announced it would back out of a deal to merge

During the conference, Ruest and Ottensmeyer spoke of the benefits of combining their two systems and confirmed that the KCS name and image would be replaced by the CN one. The success of the deal depends on whether or not the STB approves a proposal by CN to put KCS into an independent trust. Such a move would allow CN to pay KCS shareholders while the federal regulator reviews the deal. The STB had previously said it would allow CP to put KCS into a trust but not extend (at least initially) the same privilege to a CN-KCS merger, which will be much larger. CN has asked STB to reconsider that decision. 

If the STB does not let CN put KCS into trust, Ruest said he would get together with KCS officials to evaluate the path forward. 

Observers say that one of the biggest reasons the STB might reject a CN-KCS deal is the overlap of the two systems, but Ruest said that less than 1 percent of the railroads overlap and to eliminate that concern it will sell the KCS route between New Orleans and Baton Rouge. 

Later on, during his remarks, CP’s Creel scoffed at the idea that just one line is the problem. Creel showed a map of the Midwest and suggested that CN would move traffic off KCS and onto its former Illinois Central line. Creel said that would be bad for communities and customers. Creel argued that a CP-KCS merger would create “robust” competition that would be good for shippers and the public. He said that when the CN-KCS deal falls apart, CP is ready to talk again. 

While CN and KCS officials might disagree with Creel’s assessment of how the regulatory process will go, no one could disagree with his analysis of the last few weeks. 

“There’s been no shortage of twists and turns over the last two months,” he said. “These are certainly interesting times in the rail industry.” 

This article was posted on: May 26, 2021