[Federal Register Volume 65, Number 2 (Tuesday, January 4, 2000)]
[Notices]
[Pages 318-319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-105]
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DEPARTMENT OF TRANSPORTATION
Surface Transportation Board
[STB Finance Docket No. 33842]
Canadian National Railway Company, Grand Trunk Western Railroad
Incorporated, Illinois Central Railroad Company, Burlington Northern
Santa Fe Corporation, and The Burlington Northern and Santa Fe Railway
Company--Common Control
AGENCY: Surface Transportation Board.
ACTION: Decision No. 1; Notice of prefiling notification.
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SUMMARY: Pursuant to 49 CFR 1180.4(b), Burlington Northern Santa Fe
Corporation (BNSFC) and The Burlington Northern and Santa Fe Railway
Company (BNSFR),1 and Canadian National Railway Company
(CNR), Grand Trunk Western Railroad Incorporated (GTW), and Illinois
Central Railroad Company (IC),2 have notified the Surface
Transportation Board (Board) of their intention to file an application
3 seeking Board authorization under 49 U.S.C. 11323-25 and
49 CFR part 1180 for a ``major'' transaction 4 (hereinafter
referred to as the BNSF/CN transaction) under which BNSF and CN would
be brought under common control.
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\1\ BNSFC and BNSFR are referred to collectively as BNSF.
\2\ CNR, GTW, and IC are referred to collectively as CN.
\3\ BNSF and CN are referred to collectively as applicants.
\4\ A major transaction is one under 49 U.S.C. 11323 involving
the merger or control of two or more Class I railroads.
ADDRESSES: An original and 25 copies of all documents 5
filed in this proceeding must refer to STB Finance Docket No. 33842 and
must be sent to the Surface Transportation Board, Office of the
Secretary, Case Control Unit, ATTN: STB Finance Docket No. 33842, 1925
K Street, N.W., Washington, DC 20423-0001. In addition, one copy of
each document filed in this proceeding must be sent to the
Administrative Law Judge (ALJ) who will be assigned to entertain and
rule upon all disputes concerning discovery in this proceeding, and to
each of applicants' representatives: (1) Erika Z. Jones, MAYER, BROWN &
PLATT, 1909 K Street, N.W., Washington, DC 20006-1101 (representing
BNSF); and (2) Paul A. Cunningham, HARKINS CUNNINGHAM, 801 Pennsylvania
Avenue, N.W., Suite 600, Washington, DC 20004-2664 (representing CN).
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\5\ In addition, parties must submit electronic copies, which we
discuss in detail further below.
FOR FURTHER INFORMATION CONTACT: Julia M. Farr, (202) 565-1613. [TDD
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for the hearing impaired: (202) 565-1695.]
SUPPLEMENTARY INFORMATION: In the notice of intent (BN/CN-1) filed
December 20, 1999, applicants have advised that, on December 18, 1999,
BNSFC and CNR entered into a Combination Agreement, a Plan of
Arrangement, a Co-Operation Agreement, and a Voting and Exchange Trust
Agreement (VETA), under which, subject to Board authorization and other
conditions: (1) BNSFC will become a wholly owned subsidiary of a new
parent company named North American Railways, Inc. (NAR), which will
also acquire (in addition to its 100% interest in BNSFC) all of the
equity in CNR 6 and a 10.1% voting right in CNR; (2) BNSFC
shareholders will receive, for each share of their BNSFC common stock,
a ``stapled'' unit consisting of one share of NAR common stock plus one
share of CNR voting stock; (3) CNR shareholders will receive, for each
share of their CNR common stock, 1.05 ``stapled'' units, each
consisting of, at the option of the holder, either (a) one share of NAR
common stock plus one share of CNR voting stock, or (b) one share of
CNR nonvoting exchangeable preferred stock (exchangeable at the option
of the holder into one share of NAR common stock) plus one share of CNR
voting stock; 7 (4) NAR will receive 100% of CNR's limited
voting equity shares, entitling NAR, as the holder, to a vote equal to
10.1% of the total number of votes to be cast by the holders of CNR's
outstanding voting shares; 8 and (5) The Trust Company of
the Bank of Montreal, as trustee under the VETA, will receive NAR's
special voting share entitling the trustee to a number of votes at
NAR's shareholder meetings equal to the number of outstanding shares of
CNR's exchangeable preferred stock.9 Applicants have further
advised: that NAR, BNSF, and CN will be operated under the direction of
the boards of directors of NAR and CNR, which will be identical after
closing of the BNSF/CN transaction; that NAR's Chairman and its Chief
Executive, Chief Operating, and Chief Financial Officers will serve in
those same capacities at CNR; that NAR and CNR will have, at all times,
the same shareholder base; that the NAR/CNR stapled units will continue
to be publicly traded; and that each stapled unit will have the same
voting power and economic interest in the combined
enterprise.10
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\6\ Applicants have advised that only NAR will have a common
equity interest in CNR.
\7\ Applicants have advised: that the exchangeable preferred
shares are expected to be attractive to Canadian residents because
such shares will permit such residents, among other things, to defer
taxation; that, since the exchange, but not the receipt, of these
shares will be taxable for Canadian tax purposes, the holders will
in effect be given a choice as to whether, when, and to what extent
they will exchange their CNR exchangeable preferred shares for NAR
common shares; and that, by comparison, U.S. residents would be
expected to elect to receive the NAR common stock at the outset
because, under U.S. tax laws, such receipt will be essentially
nontaxable to U.S. residents for federal income tax purposes and, on
an ongoing basis, will not be subject to Canadian withholding tax.
Applicants have further advised that the dividend rights of the
holders of CNR's exchangeable preferred shares will be maintained in
economic parity with the dividend rights of the holders of NAR's
common shares.
\8\ Applicants have advised that NAR's 10.1% voting right in CNR
will permit NAR to claim foreign tax credits for federal income tax
purposes with respect to Canadian income taxes payable by CNR, which
will reduce the federal income taxes payable by NAR with respect to
dividends and other income received by NAR from CNR.
\9\ Applicants have advised: that the holders of CNR's
exchangeable preferred shares will direct the trustee as to the
voting of the NAR special voting share; and that this arrangement
will give them the same vote at NAR shareholder meetings as if they
were the direct owners of NAR common shares.
\10\ Applicants have advised that, as respects the ``stapled''
units that will be received by BNSFC shareholders and also as
respects the ``stapled'' units that will be received by CNR
shareholders, the term ``stapled'' is intended to mean that the
shares in each such unit are ``stapled'' together and cannot be
traded or otherwise disposed of separately.
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Major Transaction Status
The Board finds that the BNSF/CN transaction is a ``major
transaction,'' as defined at 49 CFR 1180.2(a), because, if implemented,
it will bring under common control the Class I railroad now controlled
by BNSFC (BNSFR) and the Class I railroads now controlled by CNR (GTW
and IC). The BNSF/CN
[[Page 319]]
application must therefore, except as modified by advance waiver,
conform to the 49 CFR part 1180 requirements applicable to major
transactions.
Impact Analysis Base Year
Applicants have indicated that they will use the year 1998 as the
base year for purposes of the impact analysis to be filed in their
application.
Application Filing Date
Applicants have indicated that they anticipate filing their
application on or after the 90 days after December 20, 1999. See 49 CFR
1180.4(b)(1) (this provision provides, in essence, that an application
respecting a major transaction must be filed between 3 and 6 months
after the filing of the prefiling notification).
Administrative Law Judge
As in past proceedings, an Administrative Law Judge will be
assigned to entertain and rule upon all disputes concerning discovery
in this proceeding.
Protective Order; Procedural Schedule
As in past proceedings, applicants will be expected to submit: a
draft version of a protective order to govern the production of
material regarded as either ``confidential'' or ``highly confidential''
(as those terms have been used in past proceedings); and a proposed
procedural schedule to govern the processing of the BNSF/CN
application.
Electronic Submissions
In addition to submitting an original and 25 copies of all paper
documents filed with the Board, parties must also submit, on diskettes
(3.5-inch IBM-compatible floppies) or compact discs, one electronic
copy of each such document (e.g., textual materials, electronic
workpapers, data bases and spreadsheets used to develop quantitative
evidence).11 Textual materials must be in, or convertible by
and into, WordPerfect 7.0. Spreadsheets must be in some version of
Lotus, Excel, or Quattro Pro. Each diskette or compact disc should be
clearly labeled with the identification acronym and number of the
corresponding paper document, see 49 CFR 1180.4(a)(2), and a copy of
such diskette or compact disc should be provided to any other party
upon request. The data contained on the diskettes or compact discs
submitted to the Board may be submitted under seal (to the extent that
the corresponding paper copies can be submitted under seal pursuant to
the protective order that will be entered in this proceeding), and will
be for the exclusive use of the Board employees reviewing substantive
and/or procedural matters in this proceeding. The flexibility provided
by such computer data is necessary for efficient review of these
materials by the Board and its staff. 12
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\11\ The results derived from electronic workpapers must be
reproducible, i.e., all underlying data bases, computer programs
(FORTRAN, COBOL, C++, etc.) and electronic spreadsheets must be
submitted in evidence. Program flows and logic trails must also be
included. Computer programs must be submitted in both source code
and executable modules. Electronic spreadsheets must be executable
and all cell inputs must be documented.
\12\ The electronic submission requirements set forth in this
decision supersede, for the purposes of this proceeding, the
otherwise applicable electronic submission requirements set forth in
our regulations. See 49 CFR 1104.3(a).
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Downstream Effects and Service Issues
In the past several years, the leading North American railroads
have undertaken a series of major transactions that, when taken
together, have dramatically reconfigured the entire North American
railroad industry. This process has proved not to be an easy one, as
evidenced by the significant and ongoing adjustments required by
railroads, shippers, and rail employees as the implementation process
for those transactions continues.
The BNSF/CN transaction, if approved and implemented, may trigger
yet another full round of major transactions, as other railroads seek
to position themselves and their customers to meet the competitive
effects of a unified BNSF/CN. 13 The ``one case at a time''
rule, 49 CFR 1180.1(g), provides that in a major transaction
proceeding, ``consideration will be limited to the impacts of
transactions which have already been approved and are, therefore,
reasonably certain to occur.'' However, given the competitive responses
that can be expected of other railroads, we will waive, on our own
motion, the rule set out in 49 CFR 1180.1(g), so that applicants and
other interested persons can submit, and the Board can consider,
evidence respecting the ``cumulative impacts and crossover effects,''
that are likely to occur in the wake of a BNSF/CN transaction.
Similarly, parties should address the effect of the proposed
transaction and any likely subsequent transactions, that would produce
further significant consolidation in the industry, upon the statutory
goals embodied in 49 U.S.C. 10101, with particular attention to those
aimed at fostering sound and competitive economic conditions in the
U.S. railroad industry. 14
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\13\ Indeed, the most recent round of major mergers began with
the consolidation of the ``Burlington Northern'' and ``Santa Fe''
systems.
\14\ Of course, we also expect applicants to address the
statutory criteria set forth in 49 U.S.C. 11324, including the
effect on competition among rail carriers in the national rail
system.
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Furthermore, as noted, North American railroads, together with
their customers and employees, have not yet fully adjusted to the
recent wave of major rail transactions. Given our recent experience
with post-merger rail service disruptions, we expect applicants and
other interested persons to submit evidence respecting the likely
effects on rail service of any action we may take, considering again
the statutory goals cited above.
This action will not significantly affect either the quality of the
human environment or the conservation of energy resources.
Decided: December 27, 1999.
By the Board, Chairman Morgan, Vice Chairman Clyburn, and
Commissioner Burkes.
Vernon A. Williams,
Secretary.
[FR Doc. 00-105 Filed 1-3-00; 8:45 am]
BILLING CODE 4915-00-P