A U.S. appeals court today upheld the Surface Transportation Board's moratorium on rail mergers, effectively putting off a proposed merger between Burlington Northern Santa Fe Corp. and Canadian National Railway Co. until mid-2001 and perhaps killing it altogether.
The U.S. Court of Appeals in Washington ruled 2-1 in favor of the 15-month moratorium imposed March 17 by the STB that blocked the companies' plan to form a $12 billion company. The agency was concerned that additional rail consolidation could trigger shipping disruptions like those in earlier mergers.The companies said they were ''deeply disappointed'' by the decision, but wouldn't speculate on their options.
BNSF Chief Executive Robert Krebs said in March the railroad might scrap the plan if it had to wait the 15 months. The carriers argued that the agency exceeded its authority.
The companies' plan to create a company with 50,000 miles of track and 67,000 workers would give them at least 30 percent of the North American rail market, topping Union Pacific Corp., the largest U.S. railroad.
UP, along with Norfolk Southern, CSX Transportation and Canadian Pacific, opposed the BNSF-CN plan, saying it would force them to merge to stay competitive.
U.S. railroads have had problems with delays and congestion for more than three years. In the East, CSX Corp. and Norfolk Southern Corp. are still experiencing service difficulties more than a year after they divided Conrail Inc.
UP triggered logjams in mid-1997 when the company tried to integrate the operations of Southern Pacific Rail Corp., which it acquired in 1996. The result was three consecutive quarters of losses during 1997 and 1998.
But not all mergers have created problems. The STB and customers haven't reported any service difficulties as a result of CN's $2.4 billion purchase of Illinois Central Railroad in 1999.
''We'll have to wait and see what the new STB merger rules are going to be,'' said Edward Emmett, president of National Industrial Transportation League. ''We'll find out whether the STB did this (moratorium) for the shippers or for the railroads.''
The appeals court said the STB had broad legal authority to impose the moratorium and assess the impact of railroad consolidation on rail competition and on the public interest.
''We will defer to its 'informed judgment' regarding the need for the moratorium in order to develop new standards for determining the public interest in merger application proceedings,'' U.S. Circuit Judge Douglas Ginsburg wrote in the majority opinion.
He was joined by Judge Stephen Williams. In a dissenting opinion, Judge David Sentelle called the board's actions arbitrary and capricious.