[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),<SUP>1</SUP> and Canadian National Railway Company 
(CNR), Grand Trunk Western Railroad Incorporated (GTW), and Illinois 
Central Railroad Company (IC),<SUP>2</SUP> have notified the Surface 
Transportation Board (Board) of their intention to file an application 
<SUP>3</SUP> seeking Board authorization under 49 U.S.C. 11323-25 and 
49 CFR part 1180 for a ``major'' transaction <SUP>4</SUP> (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 <SUP>5</SUP> 
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 <SUP>6</SUP> 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; <SUP>7</SUP> (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; <SUP>8</SUP> 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.<SUP>9</SUP> 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.<SUP>10</SUP>
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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).<SUP>11</SUP> 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. <SUP>12</SUP>
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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. <SUP>13</SUP> 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. <SUP>14</SUP>
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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