Nathan Denette/The Canadian Press via AP
Canadian Pacific trains sit at the main CP train yard in Toronto, March 21, 2022. The first major railroad merger since the 1990s was approved on Wednesday between Canadian Pacific and Kansas City Southern.
The Surface Transportation Board (STB) announced to the public on Wednesday that it voted to approve the rail merger between Canadian Pacific Railway (CP) and Kansas City Southern (KCS), the sixth- and seventh-largest Class I railroads in the country. The STB announced a series of conditions on the deal, including some climate-related measures, though the merger will still facilitate the delivery of tar sands oil from Canada to refineries near the Gulf of Mexico.
In private, however, corporate executives from the two merging firms were already acting as though the deal had gone through, according to a whistleblower complaint submitted to the board a week before its vote and reviewed by the Prospect. The source detailed a three-day retreat held in early February by the two firms at the Breakers Hotel in Palm Beach, Florida, where several attendees allege the companies improperly exchanged sensitive company information.
Before a merger goes through, companies under review remain bound by collusion laws, barring competitors from sharing certain information on a variety of topics, such as pricing and costs. That would make the February retreat between Canadian Pacific and Kansas City Southern, if substantiated by a federal investigation, illegal under the antitrust laws.
STB chairman Martin Oberman confirmed to the Prospect that he knew about the reports of the meeting, though he didn’t know about the information that was shared. Oberman was not aware of any investigation by the board to look into the complaint before the vote. The board did not contact event attendees, or the firms, about the meeting. However, the evidence of the whistleblower complaint indicates that the STB knew that CP and KCS held a meeting in February.
In response to a question from the Prospect, Oberman pointed to the need for rail firms to periodically contact one another about routine business activities, given the nature of the industry.
“Railroads have to be able to talk to one another to function,” said Oberman. “Their lines interchange with one another every day so they have to be able to communicate operational matters.”
But there are certain lines that competing firms cannot legally cross.
Typically, firms might schedule conference calls to discuss business, and such calls are cheap. But the Breakers Hotel costs upwards of $1,500 per night. The price tag for a meeting room varies between $625 and $1,630.
In March of last year, Canadian Pacific held a glitzy awards gala at the hotel’s Venetian Ballroom, complete with a laser light show. Just three miles from Mar-a-Lago, Breakers informally serves as a frequent destination for GOP fundraising junkets. In July 2022, the Republican Attorneys General Association hosted a swanky retreat for C-suite executives and corporate sponsors including Koch Industries, General Motors, Walmart, and Johnson & Johnson. The archconservative writer David Horowitz held an annual conference at the hotel resort for 20 years.
Contacted by the Prospect, Breakers would not confirm or deny whether Canadian Pacific scheduled any meetings at the hotel in February, citing its policy of customer privacy.
Before a merger goes through, companies under review remain bound by collusion laws, barring competitors from sharing certain information.
“Some attendees viewed this event as early … based on the content and message shared by the cp execs,” the whistleblower email read.
It’s not uncommon for tacit collusion to take place before a merger or acquisition officially gets rubber-stamped. The practice got so out of hand that in 2018, during the Trump administration, the Federal Trade Commission issued statements explicitly restating the guidelines regarding improper pre-merger behavior.
Though Canadian Pacific and KCS may not have been terribly concerned over the deal’s pending approval, the companies certainly put their lobbyists to work to grease the skids for lawmakers. After filing for the merger in 2021, both firms spent twice as much on lobbying expenditures, notching over $1 million. The companies also re-upped campaign contributions during the 2022 midterms.
Sen. John Thune (R-SD) pocketed $19,000 from Kansas City Southern for his re-election bid and then went out to marshal support for the merger in the local press. In 2021, Sen. John Hoeven (R-ND) sent a letter to the STB to advocate for the merger, and was awarded with a $3,000 contribution from the Association of American Railroads, of which both CP and KCS are members.
In addition to the whistleblower complaint, the STB received over 2,000 comments from affected parties. The rail merger—the first major one in two decades despite periodic attempts by CP—picked up a flurry of recent backlash after the train derailment in East Palestine, Ohio, last month that caused a chemical explosion. Sen. Elizabeth Warren (D-MA) sent a letter to the STB earlier this month to oppose the merger, citing concerns about how further concentration in railroads could raise the risk of more derailments. Reps. Katie Porter (D-CA) and Raja Krishnamoorthi (D-IL) and Sen. Dick Durbin (D-IL) also expressed opposition before STB’s decision.
Investigations into railroad monopolization show that recent downsizing measures to please shareholders have eroded rail safety and led to massive layoffs.
The Surface Transportation Board shrugged off these concerns, arguing that the deal would be in the public interest by delivering jobs and greater efficiency. At the press conference, Oberman said that while concentration is a problem in the industry, the merger would not harm competition, since the two railroads were not overlapping and held their own regional tracks. It did not find convincing evidence that environmental and safety concerns raised by local officials were substantial enough.
“Canadian Pacific wasn’t responsible for what happened in East Palestine, and their record is exactly the opposite,” said Oberman.
However, the STB did include several oversight provisions that will require CP to share company data with the board for up to seven years to monitor lines shared with other rail services, as well as capital investments and potential operation cuts.
Outside groups urged for the deal to be rejected. One of the lead opponents of the merger, the Open Markets Institute, blasted the board’s decision.
“By bringing further concentration to an already highly monopolized industry, the STB makes a mockery of the idea that market forces alone can constrain the predatory behavior of the hedge funds that now control America’s vital rail infrastructure,” said Policy Director Phillip Longman.
