CN-18 KCS-1 BEFORE THE 302407 SURFACE TRANSPORTATION BOARD ___________________________ ENTERED Office of Proceedings STB FINANCE DOCKET NO. 36514 May 26, 2021 ___________________________ Part of Public Record CANADIAN NATIONAL RAILWAY COMPANY, GRAND TRUNK CORPORATION, AND CN’S RAIL OPERATING SUBSIDIARIES – CONTROL – KANSAS CITY SOUTHERN, THE KANSAS CITY SOUTHERN RAILWAY COMPANY, GATEWAY EASTERN RAILWAY COMPANY, AND THE TEXAS MEXICAN RAILWAY COMPANY ___________________________ JOINT MOTION FOR APPROVAL OF VOTING TRUST AGREEMENT ___________________________ EXPEDITED CONSIDERATION REQUESTED ___________________________ Sean Finn Kathryn J. Gainey Raymond A. Atkins Olivier Chouc CN Terence M. Hynes CN 601 Pennsylvania Ave, Matthew J. Warren 935 de La Gauchetière NW Sidley Austin LLP Street West, Suite 500, North 1501 K Street, N.W. 16th Floor Building Washington, DC 20005 Montreal, QC H3B 2M9 Washington, DC 20004 (202) 736-8000 CANADA (202) 347-7840 [email protected] [email protected] Counsel for Canadian National Railway Company, Grand Trunk Corporation, and CN’s Rail Operating Subsidiaries Adam Godderz William A. Mullins The Kansas City Southern Crystal Zorbaugh Railway Company Baker and Miller PLLC 427 W 12th Street 2401 Pennsylvania Avenue, Suite 300 (816) 983-1324 Washington, DC 20037 [email protected] (202) 663-7823 [email protected] Counsel for Kansas City Southern, The Kansas City Southern Railway Company, Gateway Eastern Railway Company, and the Texas Mexican Railway Company Dated: May 26, 2021 CN-18 KCS-1 TABLE OF CONTENTS EXECUTIVE SUMMARY ................................................................................................. 2 ARGUMENT ...................................................................................................................... 6 I. THE VOTING TRUST WILL PREVENT UNLAWFUL CONTROL OF KCS. ........ 6 II. APPROVAL OF THE VOTING TRUST HAS SUBSTANTIAL PUBLIC INTEREST BENEFITS. .................................................................................................. 10 A. The Use of a Voting Trust Is Essential to Unlock the Public Interest Benefits of a CN-KCS Combination. .............................................................................................. 10 B. A Combination of CN and KCS Would Bring Substantial Public Benefits. ....... 13 C. Stakeholder Support Statements Confirm Substantial Public Benefits of a Voting Trust. ................................................................................................................ 17 III. A VOTING TRUST WILL NOT HARM THE PUBLIC INTEREST. .................. 25 A. The Transaction Will Not Harm CN’s Strong Financial Position. ..................... 26 B. CN’s Proposed Acquisition of KCS Presents No Significant Competitive Concerns. ...................................................................................................................... 33 C. DOJ’s Remaining Arguments Contravene Board Rules and Misunderstand the Law and Facts. ............................................................................................................. 37 D. No Other Comments Identify a Harm From Voting Trust Approval. ................ 43 IV. CP SHOULD NOT BE ALLOWED TO USE THE BOARD’S VOTING TRUST REVIEW TO COERCE KCS INTO AN INFERIOR DEAL. .......................................... 46 CONCLUSION ................................................................................................................ 50 EXHIBIT 1: Verified Statement of Jean-Jacques Ruest (with Attachment) EXHIBIT 2: Verified Statement of Patrick J. Ottensmeyer EXHIBIT 3: Verified Statement of Ghislain Houle EXHIBIT 4: Verified Statement of William J. Rennicke EXHIBIT 5: Verified Statement of Joshua D. Wright EXHIBIT 6: Opinion Letter of Lawson Hunter EXHIBIT 7: Selected Support Statements EXHIBIT 8: Agreement and Plan of Merger (fully executed, including Voting Trust Agreement as Exhibit A) CN-18 KCS-1 On May 17, 2021, the Board decided that the application of Canadian National Railway Company (“CNR”), Grand Trunk Corporation (“GTC”), and CN’s rail operating subsidiaries1 (collectively, “CN”) seeking authority for the acquisition of control of Kansas City Southern (“KCS”)2 would be subject to the Board’s current merger regulations, and denied CN’s motion to approve its proposed Voting Trust Agreement without prejudice as “incomplete.”3 CN and KCS (collectively, “Applicants”) now file this Joint Motion for Approval of their Voting Trust Agreement. In this Motion, Applicants will address each element of the Board’s test for voting trust approval, following the guidance the Board provided in its May 17 Decision. The revised Voting Trust Agreement and now- executed merger agreement were submitted to the Board on May 18, 2021, and a fully executed version is attached as Exhibit 8. 1 CN’s U.S. rail operating subsidiaries include Illinois Central Railroad Company (“IC”), Wisconsin Central Ltd. (“WCL”), Grand Trunk Western Railroad Company (“GTW”), Bessemer and Lake Erie Railroad Company (“B&LE”), Chicago, Central & Pacific Railroad Company (“CC&P”), Cedar River Railroad Company (“CEDR”), The Pittsburgh & Conneaut Dock Company (“P&CD”), Sault Ste. Marie Bridge Company (“SSMB”), Waterloo Railway Company (“WLOO”), and Wisconsin Chicago Link Ltd. (“WCLL”). CN’s rail operating subsidiaries in Canada include Algoma Central Railway, Inc. (“ACR”), Quebec and Lake Saint John Railway Company (“QLSJR”), Canadian Northern Quebec Railway Company (“CNQ”), Canada Southern Railway Company (“CASO”), and BC Rail Partnership (“BCRP”). 2 “KCS” is Kansas City Southern, The Kansas City Southern Railway Company, Gateway Eastern Railway Company, and The Texas Mexican Railway Company. 3 Decision No. 2; Decision No. 3, Canadian Nat’l Ry. Co. et al.—Control—Kansas City Southern et al., STB Finance Docket No. 36514 (served May 17, 2021) (“May 17 Decision”), at 1. 1 CN-18 KCS-1 EXECUTIVE SUMMARY After an intense competition among CN, Canadian Pacific (“CP”), and private equity interests, all seeking to acquire KCS’s historic railroad franchise, KCS has determined that a partnership with CN will provide the greatest benefits to rail customers, employees, local communities, the North American economy, and KCS shareholders.4 The Board’s approval of Applicants’ Voting Trust Agreement—and the regulatory certainty that it provides—is essential to unlock the considerable public interest benefits of a CN-KCS combination. Applicants appreciate that the STB will approve a voting trust for a major merger cautiously. Under the current merger rules, Applicants must demonstrate that the public benefits from the use of a voting trust exceed any potential harms. In this Motion, Applicants meet that standard. We will show that approval of the proposed voting trust conforms with all requirements set forth in 49 C.F.R. Part 1013, would achieve substantial public benefits, does not present any significant public interest harm, and thus satisfies the Board’s public interest test in 49 C.F.R. § 1180.4(b)(4)(iv). First, the CN-KCS combination will bring overwhelming public interest benefits—benefits that cannot be realized without a voting trust. The competitive benefits of the transaction are detailed by CN’s President and Chief Executive Officer Jean-Jacques Ruest, by KCS’s President and Chief Executive Officer 4 See KCS Letter to STB, Canadian National Ry. Co.—Control—Kansas City So. et al., STB Finance Docket No. 36514 (“CN-KCS”) CN-KCS (filed May 21, 2021). 2 CN-18 KCS-1 Patrick J. Ottensmeyer, and in the more than 1,100 supporting letters filed with the Board by stakeholders, including customers, port authorities, and communities for whom the transaction will provide a safer, faster, cleaner, and stronger rail option. These stakeholders will particularly benefit from single-line North-South service from Mexico to Canada and service linking Mid-America to east and west coast markets and international ports. The proposed combination will enhance trade and the public policy supporting North American trade embodied in the United States-Mexico-Canada Agreement (“USMCA”), and create a more resilient supply chain. As these letters reflect, the combination will result not only in better service, more shipping options and streamlined routing, but also in substantial environmental benefits, as the single-line CN-KCS rail network will allow trains to compete more successfully with trucks, which produce far more pollution to haul the same loads. As Mr. Ruest and Mr. Ottensmeyer explain, use of a voting trust is essential to unlock those benefits. Second, approval of the voting trust presents no public interest harms. The Board has identified potential financial harm to the applicants as a key focus of public interest review. Here, the Board has already concluded that divestiture would not cause financial harm to KCS.5 CN, too, will remain financially strong following the combination and would remain so if it were required to divest KCS. 5 Decision No. 5, Canadian Pacific Railway Ltd.—Control—Kansas City Southern, STB Finance Docket No. 36500 (May 6, 2021) (“May 6 Decision”), at 6 (“The Board also finds that, in the event divestiture were necessary, there is no significant risk that the financial strength or operational capabilities of Kansas City Southern … would be compromised.”). 3 CN-18 KCS-1 As detailed in the Verified Statement of Ghislain Houle, CN’s Executive Vice President and Chief Financial Officer, the acquisition premium CN has proposed does not remotely threaten its financial