Author: NCFO SEIU 32BJ

NCFO JOINS HIGH-SPEED RAIL EXECUTIVE COMMITTEE

Dean Devita, President of the National Conference of Firemen & Oilers, SEIU 32BJ (NCFO) announced today that the Executive Board of the National Conference of Firemen & Oilers unanimously voted to join the U.S. High-Speed Rail Coalition Executive Committee. The Committee is comprised of passenger and high-speed rail stakeholders, proponents and supporters.

The Committee’s campaign will focus on educating both the public and all levels of elected officials on the benefits of investing in the expansion of high-speed rail services.

Goals of the Campaign

• A minimum of $205 billion for true high-speed rail
• The establishment of a Rail Trust Fund
• Formation of a High-Speed Rail Development Agency within USDOT
• Maintaining the robust labor standards outlined in the American High Speed Rail Act

The U.S. High-Speed Rail Coalition is chaired by three former secretaries of the Department of Transportation. Through their fierce efforts advocating for more high-speed rail funding, the High-Speed Rail Coalition has increased the funding from $20 billion to $30 billion over five years in the INVEST ACT.  The Coalition hopes to increase high-speed rail funding even more in the next few months during reconciliation.

High-Speed Rail means jobs for all rail partner unions. As well as members in SEIU, the building and construction trades, steel workers and plumbers.  The Buy America provisions will help revitalize our domestic manufacturing and steel production.  Increasing high-speed rail funding opens up an avenue for new union members in this new transportation sector.  It is the future of those unions, especially the rail unions, and most of all the members of the NCFO, SEIU and our rail union partners.

NCFO President Dean Devita issued the following statement:

“If not today, when will our Nation address the desperate need for High-Speed Rail? TODAY is the opportunity to rebuild our transportation infrastructure. The NCFO is proud to join the High-Speed Rail Executive Committee. Together WE will make sure America rebuilds, rides and prosperous because of High-Speed Rail.”

NCFO Secretary-Treasurer Robert Smith stated:

“The NCFO is excited about this opportunity, for commuters, NCFO members and for the entire Labor Movement.”   

The NCFO is are an affiliate of 32BJ SEIU, the Service Employees International Union, which has 2.1 million members dedicated to raising industry standards, making life better for working families and our communities, and building a fair economy. The NCFO represents members employed in the Commercial Sector and Freight Railroads, Amtrak, Commuter Rail and short line railroads.

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NATIONAL CONFERENCE OF FIREMEN & OILERS PRESIDENT DEAN DEVITA ISSUES A STATEMENT ABOUT BIPARTISAN INFRASTRUCTURE FRAMEWORK

“Yesterday, the National Conference of Firemen & Oilers in conjunction with our Labor Partners provided video messages in support of an infrastructure bill to finally rebuild America. Today, President Biden announced his support for the Bipartisan Infrastructure Framework, the largest long-term investment in our infrastructure and competitiveness in nearly a century – an investment that will make our economy more sustainable, resilient and just”. President Devita continued, “finally a true investment for our Nation, one that will directly make a difference in our transportation infrastructure, but most importantly this agreement will address many important issues that will benefit our Nation”.

Statement From the White House

 The President came into office promising to find common ground to get things done – and he’s delivering on that promise. The $1.2 trillion Bipartisan Infrastructure Framework is a critical step in implementing President Biden’s Build Back Better vision. The Plan makes transformational and historic investments in clean transportation infrastructure, clean water infrastructure, universal broadband infrastructure, clean power infrastructure, remediation of legacy pollution, and resilience to the changing climate. Cumulatively across these areas, the Framework invests two-thirds of the resources that the President proposed in his American Jobs Plan. President Biden believes that we must invest in our country and in our people, creating good-paying union jobs, tackling the climate crisis, and growing the economy sustainably, and equitably for decades to come. The Bipartisan Infrastructure Framework is a critical step in accomplishing these objectives. President Biden believes that we are at inflection point between democracy and autocracy. At this moment in our history, President Biden believes we must demonstrate to the world that American democracy can deliver for the American people. Today, the President is showing that democracy can deliver results. The Framework will position American workers, farmers, and businesses – small and large alike – to compete and win in the 21st century. Still, there is more work to do – to grow our economy, create jobs, improve living standards, reduce climate pollution, and ensure more Americans can participate fully and equally in our economy. President Biden remains committed to the comprehensive agenda laid out in the American Jobs Plan and American Families Plan. He will work with Congress to build on the Bipartisan Infrastructure Framework in legislation that moves in tandem, and he is encouraged that both the House and Senate are working on budget plans that would do so. But democracy requires compromise. The historic Bipartisan Infrastructure Framework will make life better for millions of Americans, create a generation of good-paying union jobs and economic growth, and position the United States to win the 21st century, including on many of the key technologies needed to combat the climate crisis. That’s what President Biden and Vice President Harris were elected to do. The President calls on Congress to pass the Bipartisan Infrastructure Framework and send it to his desk, and pass a budget resolution and legislation that makes his full Build Back Better vision a reality.

The Bipartisan Infrastructure Framework will:

• Improve healthy, sustainable transportation options for millions of Americans by modernizing and expanding transit and rail networks across the country, while reducing greenhouse gas emissions. The Plan is the largest federal investment in public transit in history and is the largest federal investment in passenger rail since the creation of Amtrak.
• Repair and rebuild our roads and bridges with a focus on climate change mitigation, resilience, equity, and safety for all users, including cyclists and pedestrians. The Bipartisan Infrastructure Framework is the single largest dedicated bridge investment since the construction of the interstate highway system.
• Build a national network of electric vehicle (EV) chargers along highways and in rural and disadvantaged communities. The largest investment in EV infrastructure in history, the Bipartisan Infrastructure Framework will accomplish the President’s goal of building 500,000 EV chargers.
• Electrify thousands of school and transit buses across the country to reduce harmful emissions and drive domestic manufacturing of zero emission vehicles and components.
• Eliminate the nation’s lead service lines and pipes, delivering clean drinking water to up to ten million American families and more than 400,000 schools and child care facilities that currently don’t have it, including in Tribal nations and disadvantaged communities. The Plan is the largest investment in clean drinking water and waste water infrastructure in American history.
• Connect every American to reliable high-speed internet, just as the federal government made a historic effort to provide electricity to every American nearly one hundred years ago. The Framework will also drive down prices for internet service and close the digital divide.
• Upgrade our power infrastructure, including by building thousands of miles of new, resilient transmission lines to facilitate the expansion of renewable energy, including through a new Grid Authority. The Plan is the single largest investment in clean energy transmission in American history.
• Create a first of its kind Infrastructure Financing Authority that will leverage billions of dollars into clean transportation and clean energy.
• Make the largest investment in addressing legacy pollution in American history, a cleanup effort that will create good-paying union jobs and advance environmental justice.
• Prepare more of our infrastructure for the impacts of climate change, cyber-attacks, and extreme weather events. The Framework is the largest investment in the resilience of physical and natural systems in American history.

The Framework, which will generate significant economic benefits and returns, is financed through a combination of closing the tax gap, redirecting unspent emergency relief funds, targeted corporate user fees, and the macroeconomic impact of infrastructure investment

This bipartisan infrastructure framework will usher our Nation’s infrastructure into the 21st century. It would represent the largest infrastructure investment in American history. The plan includes

$579 billion in new spending to rebuild America’s roads and bridges, improve public transit systems, expand passenger rail, upgrade our ports and airports, invest in broadband infrastructure, fix our water systems, modernize our power sector and improve climate resilience. The plan would be paid for in part by closing the tax gap, redirecting unspent emergency relief funds, and other offsets.

	(billion)
Transportation	$312
Roads, bridges, major projects	$109
Safety	$11
Public Transit	$49
Passenger and Freight Rail	$66
EV infrastructure	$7.5
Electric Buses / Transit	$7.5
Reconnecting Communities	$1
Airports	$25
Ports & Waterways	$16
Infrastructure Financing	$20
Other Infrastructure	$266
Water Infrastructure	$55
Broadband Infrastructure	$65
Environmental Remediation	$21
Power Infrastructure (incl. grid authority)	$73
Western Water Storage	$5
Resilience	$47
Total	$579 billion

Proposed Financing Sources for New Investment

• Reduce the IRS tax gap
• Unemployment insurance program integrity
• Redirect unused unemployment insurance relief funds
• Repurpose unused relief funds from 2020 emergency relief legislation
• State and local investment in broadband infrastructure
• Allow states to sell or purchase unused toll credits for infrastructure
• Extend expiring customs user fees
• Reinstate Superfund fees for chemicals
• 5G spectrum auction proceeds
• Extend mandatory sequester
• Strategic petroleum reserve sale
• Public private partnerships, private activity bonds, direct pay bonds and asset recycling for infrastructure investment
• Macroeconomic impact of infrastructure investment

The NCFO is an affiliate of 32BJ SEIU, the Service Employees International Union, which has 2.1 million members dedicated to raising industry standards, making life better for working families and our communities, and building a fair economy.

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Commemorating 156 Years of Celebrating the Emancipation of African American Slaves

The red, white & blue flag you see pictured commemorates the day that Union Major General Gordon Granger and 2,000 federal troops arrived on the island of Galveston, Texas and told the last enslaved African Americans “…that, in accordance with a proclamation from the Executive of the United States, all slaves are free.” Though the Emancipation Proclamation went into effect on January 1st, 1863, it took 2½ years for this declaration of independence to happen because the Civil War had been ongoing and had not ended until May 9th, 1865. Southern slaves under confederate rule were not freed until federal troops marched though towns to enforce the emancipation of slaves in 1865. That lead them to Galveston on June 19th, or Juneteenth, to free the last slaves in America. African Americans have celebrated Juneteenth as an unofficial national independence day ever since that day in 1965.

The flag, created in 1997 by Ben Haith, the founder of the National Juneteenth Celebration Foundation (NJCF), has the same American flag COLORS meant to show that the formerly enslaved people and their descendants are free Americans too. The ARC bordering the red and blue represents a new horizon – fresh opportunities and promising futures for African Americans. The STAR is not only a nod to the Lone Star State where Juneteenth was first celebrated in 1865, but it also stands for the freedom of every African American in all 50 states. The BURST surrounding the star is meant to reflect a nova— or new star—which represents a new beginning for all Americans. What is most unfortunate is that Juneteenth, a day of jubilee celebrated all over the country for more than 150 years, was not widely know in the United States prior to the movements of 2020. Juneteenth represents the end of horrible exploitative crimes against humanity for people of color, and it is important for us to acknowledge and grow from our sins of the past. It’s also a hard pill to swallow that the U.S. was one of the last countries to abolish slavery after the Civil War, a war 25 times more deadly than the American Revolutionary which bore Independence Day.

We at the NCFO agree that the Juneteenth National Independence Day bill signed into law yesterday was long overdue. We lock arms with our brothers & sisters of all races and stand up for civil rights of all Americans, and Juneteenth marks the true beginning in the fight for civil rights for African Americans.

Happy Juneteenth from President Dean Devita, Secretary Treasurer Bob Smith, and everyone here at the NCFO!

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Ashland, KY

NATIONAL CONFERENCE OF FIREMEN & OILERS’ PRESIDENT DEAN DEVITA ISSUES A STATEMENT ABOUT THE INVEST IN AMERICA ACT OF 2021

“The National Conference of Firemen & Oilers, support the INVEST in America Act of 2021, which has passed the U.S. House of Representatives Committee on Transportation and Infrastructure.

The legislation includes immensely important provisions for National Conference of Firemen & Oilers’ members and all of Rail Labor. Included in the bill is the Transforming Rail by Accelerating Investment Nationwide Act – “TRAIN ACT.”

The bill would provide $32 billion over five years in grants to support Amtrak on the Northeast Corridor (NEC) and the National Rail Network. It provides another $25 billion over five years to both the Passenger Rail Improvement Modernization and Expansion grant program and the Bridges, Stations, and Tunnels.

This is very important to the members of the National Conference of Firemen & Oilers because the bill amends current Amtrak contracting limitations to clarify that Amtrak cannot contract out the work performed by an employee, if such employee has been laid off and has not been recalled to perform such work. It also clarifies that Amtrak is not authorized to contract out work if prohibited to do so in an agreement entered into with its workers. The bill also requires the FRA to increase the number of safety inspectors by 20 percent over five years.

Railroad Rehabilitation and Improvement Financing (RRIF), provides direct loans and loan guarantees to finance development of railroad infrastructure.

The bill will allow the FRA secretary to study the safety impacts of trains composed of more than 150 railcars and it will require two-person crews on Class 1 railroads and for all trains carrying dangerous hazmat or added length, regardless of railroad classification.

This action is good for the members of the National Conference of Firemen & Oilers, but it is even better for the citizens of the United States of America.”

The NCFO is an affiliate of 32BJ SEIU, the Service Employees International Union, which has 2.1 million members dedicated to raising industry standards, making life better for working families and our communities, and building a fair economy.
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Rayne Johnson took a job as a railroad mechanic after high school, and he maintains that job today as a Chapter 578 member all while performing anywhere and everywhere with a stage. Proving his work ethic is unparalleled, Rayne hustled for more than a decade thriving in his full-time career while pursuing his passion for music. Rayne actually learned guitar from an older co-worker during their downtime and gleamed the basics on a used Ovation Celebrity. The railroader has now generated over 55 million streams as an independent artist and received acclaim from CMT and Taste of Country who crowned him “a smooth operator”.

The Fairfield, Ohio singer/songwriter amplifies traditional country tales through soulful vocals bolstered by rock energy and a twist of R&B flavor. His self-titled 2020 EP made the Top 10 on the iTunes Country Album chart, and his debut single, “Front Seat”, is the only independent record to break the country airplay Top 40 on Billboard in the past 5 years. Rayne is truly a super star in the making.

To show his support and solidarity with our Union, Rayne Johnson has an exclusive link for NCFO members to preview his new single before it’s debut! Do yourself a favor and click the link below to support our brother:

https://www.raynejohnson.com/ncfo

Follow him on Instagram & Twitter @RayneJohnson

Follow him on YouTube @RayneJohnsonMusic

Ashland, KY

NATIONAL CONFERENCE OF FIREMEN & OILERS’ PRESIDENT DEAN DEVITA ISSUES A STATEMENT ABOUT THE TRAGIC EVENTS AT VALLEY TRANSPORTATION RAIL YARD

“The NCFO sends our condolences to the families, co-workers and friends of the men and women who lost their lives due to an act of violence at the Valley Transportation Rail Yard in San Jose, CA.

We send our solidarity to our labor partners, the Amalgamated Transit Union (ATU) President John A. Costa as well as the ATU officers, staff and most of all the ATU members.

Every union wants their members to return to their family safe, happy and healthy after they complete their tour of duty. It is heartbreaking that these ATU members will no longer be able to be with their loved ones.

God Bless these brave men and women. God, please protect all workers.”

The NCFO is an affiliate of 32BJ SEIU, the Service Employees International Union, which has 2.1 million members dedicated to raising industry standards, making life better for working families and our communities, and building a fair economy.

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Josh Funk, journalist for the Associated Press, published a story on how rail companies are defending staff cuts while extending freight train lengths and claiming that the railroads are safer, but our railroad members are overworked and don’t feel safe:

US rail industry defends safety record amid staffing cuts (apnews.com)

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Washington, DC

The Brotherhood of Maintenance of Way Employees Division-IBT, the Brotherhood of Railroad Signalmen, the International Association of Sheet Metal, Air, Rail and Transportation Workers-Mechanical Division; and National Conference of Firemen and Oilers, 32BJ/SEIU have submitted comments to the Surface Transportation Board regarding the potential sale of Kansas City Southern Railway (KCS). Together, the four unions will be collectively referred to as the Allied Rail Unions (ARU). Those comments are summarized below.

The concern of the ARU is the non-productive, and potentially destructive, competition between Canadian National (“CN”) and Canadian Pacific (“CP”). After CP offered a premium to KCS shareholders for its proposed acquisition, CN upped the ante by 21 percent; it bid $5 billion over what CP was offering. Now CN has increased its offer by another $770 million. According to the Surface Transportation Board “CN intends to raise ‘approximately $19.3 billion of new debt’ to finance its proposed merger with KCS”; and CN’s most recent offer “represent[s] ‘an implied premium of 45% when compared to KCS’ unaffected closing stock price on March 19, 2021.” In response, CP may increase its offer. As CN and CP compete for KCS they may negate any potential transportation benefits of a consolidation with KCS, and there is a likelihood that innocent bystanders–– employees of CP, CN and KCS, and shippers which use those carriers—will pay a price for this exercise in one-upmanship.

A bidding war has consequences. By overpaying to keep the target out of the hands of its rival, the successful bidder would have less capital to invest in the ultimate railroad; every dollar spent wooing shareholders of the target is a dollar not invested in the railroad. The successful bidder, having spent more than what was anticipated would likely seek to recoup its excess expenditures by seeking so-called cost-cutting “efficiencies” from rail workers; and it would likely seek to reduce other costs, which, in turn, would diminish service.

When CSX tried to acquire control of Conrail, offering a premium to Conrail shareholders, NS offered to top CSX’s bid, which led to CSX upping its offer, then STB Chair Linda Morgan brokered a resolution– a division of Conrail between CSX and NS.  But some damage was done as a result of inflated payments to Conrail shareholders CSXT and NSR sought to reduce labor costs by implementing so-called efficiencies. However, unlike Conrail, there does not appear to be a reasonable way to divide KCS.

The Board should recognize it has a role to play to ensure that any acquisition of KCS is in the public interest. Under the Interstate Commerce Act, when presented with the merger or control of two Class I carriers, the Board “shall consider” the effect of the transaction on adequacy of transportation to the public”, “the total fixed charges that result from the transaction”, “the interest of carrier employees affected”, and whether the proposed transaction would have an adverse effect on competition. Ultimate approval of a transaction is dependent on a determination that the transaction is “consistent with the public interest”. The ARU contend that the successful bidder overpaying for KCS, depleting resources and taking on debt, and chasing “efficiencies” in order to recoup the overpayment are bad for rail transportation.

KCS’s current shareholders seek the highest price for their shares; the long-term health and vitality of the ultimate railroad is not their foremost concern. But they do not decide whether an acquisition is in the public interest; the Board must make that determination. The shareholders should be cautioned that, their efforts to maximize the bids for their shares may lead the Board to find that the bidding war has undermined the potential value of the transaction.

The Board should make it clear that its assessment of whether a proposed acquisition of KCS is in the public interest will turn in part on evaluation of the purchase price and any premium paid. The Board should also make it clear that just because the applicants have invested time and money in bringing forward an application, financial markets like the transaction, and they have lined-up supporters, that will not be sufficient to gain approval of the transaction. And the Board should declare that it will not approve plans for cost-cutting and so-called “rationalizations” that appear to be driven by a desire to recoup overpayment for control of KCS, and it will not approve a bid when the transportation value of the proposed transaction has been diminished by overpayment that has resulted from corporate one-upmanship to obtain advantage in a rivalry.

The NCFO is an affiliate of 32BJ SEIU, the Service Employees International Union, which has 2.1 million members dedicated to raising industry standards, making life better for working families and our communities, and building a fair economy.

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Finance Docket No. 36514

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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

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ALLIED RAIL UNIONS’ PRELIMINARY COMMENTS

The Brotherhood of Maintenance of Way Employees Division/IBT; Brotherhood of Railroad Signalmen; International Association of Sheet Metal, Air, Rail and Transportation Workers-Mechanical Division; and National Conference of Firemen and Oilers, 32BJ/SEIU (referred to herein as the “Allied Rail Unions” or “ARU”)[1] respectfully submit these preliminary comments concerning the above-captioned potential transaction.     

          At this time, the ARU take no position regarding the merits of a proposed acquisition of Kansas City Southern (“KCS”). Nor do they express a preference for this proposed transaction or the competing proposed transaction in F.D. 36500. The present concern of the ARU is the non-productive, and potentially destructive, competition between Canadian National (“CN”) and Canadian Pacific (“CP”). After CP offered a premium to KCS shareholders for its proposed acquisition, CN upped the ante by 21%. Just several weeks after CP announced its proposed acquisition, CN announced that it would bid $5 billion over what CP was offering. Now CN has increased its offer by another $770million. According to the Board’s Decision No. 3 in this proceeding “CN intends to raise ‘approximately $19.3 billion of new debt’ to finance its proposed merger with KCS; CN’s original offer “represents “an implied premium of 45% when compared to KCS’ unaffected closing stock price on March 19, 2021”; and the most recent offer “represent[s] ‘an implied premium of 45% when compared to KCS’ unaffected closing stock price on March 19, 2021’”. And now there is talk of CP increasing its offer. As CN and CP compete for KCS, and offer KCS shareholders premium on top of premium, there is a very real possibility that they may negate any potential transportation benefits of a consolidation with KCS, and there is a likelihood that innocent bystanders–– employees of CP, CN and KCS, and shippers which use those carriers—will pay a price for this exercise in one-upmanship.

            A bidding war has consequences. The successful carrier would be spending far more than any rational calculation of the value of the target. By overpaying to keep the target out of the hands of its rival, the successful bidder would have less capital to invest in the ultimate railroad; every dollar spent wooing shareholders of the target is a dollar not invested in the railroad. Further, to support increasing bids, the successful contestant would be likely to take on unanticipated debt, beyond what otherwise would be appropriate, to acquire the target; or it would diminish existing resources. The successful bidder, having spent more than what was anticipated and what is reasonable would likely seek to recoup its excess expenditures by seeking so-called cost-cutting “efficiencies” from rail workers; and it would likely seek to reduce other costs, which, in turn, would diminish service.

            The ARU have seen this movie before. When CSX tried to acquire control of Conrail, offering a premium to Conrail shareholders, NS offered to top CSX’s bid, which led to CSX upping its offer. Conrail’s shareholders were the beneficiaries of a competition to pay them far beyond the intrinsic or even market value of their shares. Because of concerns about where the competition might lead, then STB Chair Linda Morgan stepped in and called a time out and brokered a resolution– CSXT would acquire the lines of the former New York Central Railroad, and NS would acquire the lines of the former Pennsylvania Railroad. The bleeding of resources was stopped but some damage was done as a result of inflated payments to Conrail shareholders, which ultimately reduced resources available to the surviving railroads. And in completing the acquisitions CSXT and NSR sought to reduce labor costs by implementing so-called efficiencies. One cannot know what reduction to labor costs would have been sought but for the bidding war, but the inflated share prices as a result of the bidding war certainly increased pressure to implement “efficiencies”.

            However, there is no obvious similar solution to a wasteful competition between CP and CN. Unlike in the case of Conrail, there does not appear to be a reasonable way to divide KCS between them. But that does not mean that the Board should be inert if the competition escalates. As was the case with Conrail, the Board should recognize it has a role to play to ensure that any acquisition of KCS is in the public interest. Under Section 11324, when presented with a transaction involving the merger or control of two Class I carriers, the Board “shall consider” the effect of the transaction on adequacy of transportation to the public”, “the total fixed charges that result from the transaction”, “the interest of carrier employees affected”, and whether the proposed transaction would have an adverse effect on competition. Ultimate approval of a transaction is dependent on a determination that the transaction is “consistent with the public interest”; and the Board may impose conditions on its approval of a transaction. CP and CN are each committed to acquiring KCS. On CN’s part, it is driven not only by what it presumably believes to be the benefits of a consolidation, but also to keep KCS out of the hands of its rival (after all, CN only moved after CP announced its plan). On CP’s part, it apparently believed in the benefit of a consolidation with KCS and offered a price it thought appropriate with some premium to induce acceptance, but now it has invested time and resources that it does not wish to lose, and it too is concerned about its rival acquiring KCS. While the ARU will not opine as to whether these are rational business decisions for CN and CP, the ARU do submit that the successful bidder overpaying for KCS, depleting resources and taking on debt, and chasing “efficiencies” in order to recoup the overpayment are bad for rail transportation.

            At this point, which bid is accepted by KCS and what the purchase price will be is in the hands of KCS shareholders. KCS’s current shareholders have an incentive to seek the highest price for their shares; the long-term health and vitality of the ultimate railroad is not their foremost concern. But they do not have the final say; they do not decide whether an acquisition is in the public interest; the Board must make that determination. And the shareholders should be cautioned that, notwithstanding their efforts to maximize the bids for their shares, it may all come to naught if the Board finds that the bidding war has undermined the potential value of the transaction. 

            Given those standards, the Board should make it clear that its assessment of whether a proposed acquisition of KCS is appropriate will be based on the considerations identified in Section 11324, and on whether it is ultimately in the public interest, and it will turn in part on evaluation of the purchase price and any premium paid. The Board should also make it clear that just because the applicants have invested time and money in bringing forward an application, financial markets like the transaction, and they have lined-up supporters (who don’t even know any details about this transaction) will not be sufficient to gain approval of the transaction. And the Board should declare that it will not approve plans for cost-cutting and so-called “rationalizations” that appear to be driven by a desire to recoup overpayment for control of KCS. Finally, the Board should also state that despite the plans of the successful bidder, despite the resources expended and debt assumed, despite the effects of any voting trust, it will not approve a bid when the transportation value of the proposed transaction has been diminished by overpayment that has resulted from corporate one-upmanship to obtain advantage in a rivalry.

Respectfully submitted,

/s/ Richard S. Edelman
Richard S. Edelman
Aaron S. Edelman
Mooney, Green, Saindon, Murphy & Welch, P.C.
1920 L Street NW, Suite 400
Washington, DC 20036
(202) 783-0010
[email protected]
[email protected]

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1. There is no formal organization known as the “Allied Rail Unions”, rather that name has been adopted by these organizations for convenient collective reference in this proceeding; each organization is a separate participant in this proceeding.

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Finance Docket No. 36500

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CANADIAN PACIFIC RAILWAY LIMITED, ET AL.
– CONTROL –
KANSAS CITY SOUTHERN, ET AL.

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ALLIED RAIL UNIONS’ PRELIMINARY COMMENTS

The Brotherhood of Maintenance of Way Employees Division/IBT; Brotherhood of Railroad Signalmen; International Association of Sheet Metal, Air, Rail and Transportation Workers-Mechanical Division; and National Conference of Firemen and Oilers, 32BJ/SEIU (referred to herein as the “Allied Rail Unions” or “ARU”) respectfully submit these preliminary comments concerning the above-captioned potential transaction.

At this time, the ARU take no position regarding the merits of a proposed acquisition of Kansas City Southern (“KCS”). Nor do they express a preference for this proposed transaction or the competing proposed transaction in F.D. 36514. The present concern of the ARU is the non-productive, and potentially destructive, competition between Canadian National (“CN”) and Canadian Pacific (“CP”). After CP offered a premium to KCS shareholders for its proposed acquisition, CN upped the ante by 21%. Just several weeks after CP announced its proposed acquisition, CN announced that it would bid $5 billion over what CP was offering. Now CN has increased its offer by another $770million. According to the Board’s Decision No. 3 in F.D. 36514, “CN intends to raise ‘approximately $19.3 billion of new debt’ to finance its proposed merger with KCS; CN’s original offer “represents “an implied premium of 45% when compared to KCS’ unaffected closing stock price on March 19, 2021”; and the most recent offer “represent[s] ‘an implied premium of 45% when compared to KCS’ unaffected closing stock price on March 19, 2021’”. And now there is talk of CP increasing its offer. As CN and CP compete for KCS, and offer KCS shareholders premium on top of premium, there is a very real possibility that they may negate any potential transportation benefits of a consolidation with KCS, and there is a likelihood that innocent bystanders–– employees of CP, CN and KCS, and shippers which use those carriers—will pay a price for this exercise in one-upmanship.

A bidding war has consequences. The successful carrier would be spending far more than any rational calculation of the value of the target. By overpaying to keep the target out of the hands of its rival, the successful bidder would have less capital to invest in the ultimate railroad; every dollar spent wooing shareholders of the target is a dollar not invested in the railroad. Further, to support increasing bids, the successful contestant would be likely to take on unanticipated debt, beyond what otherwise would be appropriate, to acquire the target; or it would diminish existing resources. The successful bidder, having spent more than what was anticipated and what is reasonable would likely seek to recoup its excess expenditures by seeking so-called cost-cutting “efficiencies” from rail workers; and it would likely seek to reduce other costs, which, in turn, would diminish service.

The ARU have seen this movie before. When CSX tried to acquire control of Conrail, offering a premium to Conrail shareholders, NS offered to top CSX’s bid, which led to CSX upping its offer. Conrail’s shareholders were the beneficiaries of a competition to pay them far beyond the intrinsic or even market value of their shares. Because of concerns about where the competition might lead, then STB Chair Linda Morgan stepped in and called a time out and brokered a resolution– CSXT would acquire the lines of the former New York Central Railroad, and NS would acquire the lines of the former Pennsylvania Railroad. The bleeding of resources was stopped but some damage was done as a result of inflated payments to Conrail shareholders, which ultimately reduced resources available to the surviving railroads. And in completing the acquisitions CSXT and NSR sought to reduce labor costs by implementing so-called efficiencies. One cannot know what reduction to labor costs would have been sought but for the bidding war, but the inflated share prices as a result of the bidding war certainly increased pressure to implement “efficiencies”.

However, there is no obvious similar solution to a wasteful competition between CP and CN. Unlike in the case of Conrail, there does not appear to be a reasonable way to divide KCS between them. But that does not mean that the Board should be inert if the competition escalates. As was the case with Conrail, the Board should recognize it has a role to play to ensure that any acquisition of KCS is in the public interest. Under Section 11324, when presented with a transaction involving the merger or control of two Class I carriers, the Board “shall consider” the effect of the transaction on adequacy of transportation to the public”, “the total fixed charges that result from the transaction”, “the interest of carrier employees affected”, and whether the proposed transaction would have an adverse effect on competition. Ultimate approval of a transaction is dependent on a determination that the transaction is “consistent with the public interest”; and the Board may impose conditions on its approval of a transaction. CP and CN are each committed to acquiring KCS. On CN’s part, it is driven not only by what it presumably believes to be the benefits of a consolidation, but also to keep KCS out of the hands of its rival (after all, CN only moved after CP announced its plan). On CP’s part, it apparently believed in the benefit of a consolidation with KCS and offered a price it thought appropriate with some premium to induce acceptance, but now it has invested time and resources that it does not wish to lose, and it too is concerned about its rival acquiring KCS. While the ARU will not opine as to whether these are rational business decisions for CN and CP, the ARU do submit that the successful bidder overpaying for KCS, depleting resources and taking on debt, and chasing “efficiencies” in order to recoup the overpayment are bad for rail transportation.

At this point, which bid is accepted by KCS and what the purchase price will be is in the hands of KCS shareholders. KCS’s current shareholders have an incentive to seek the highest price for their shares; the long-term health and vitality of the ultimate railroad is not their foremost concern. But they do not have the final say; they do not decide whether an acquisition is in the public interest; the Board must make that determination. And the shareholders should be cautioned that, notwithstanding their efforts to maximize the bids for their shares, it may all come to naught if the Board finds that the bidding war has undermined the potential value of the transaction.

Given those standards, the Board should make it clear that its assessment of whether a proposed acquisition of KCS is appropriate will be based on the considerations identified in Section 11324, and on whether it is ultimately in the public interest, and it will turn in part on evaluation of the purchase price and any premium paid. The Board should also make it clear that just because the applicants have invested time and money in bringing forward an application, financial markets like the transaction, and they have lined-up supporters (who don’t even know any details about this transaction) will not be sufficient to gain approval of the transaction. And the Board should declare that it will not approve plans for cost-cutting and so-called “rationalizations” that appear to be driven by a desire to recoup overpayment for control of KCS. Finally, the Board should also state that despite the plans of the successful bidder, despite the resources expended and debt assumed, despite the effects of any voting trust, it will not approve a bid when the transportation value of the proposed transaction has been diminished by overpayment that has resulted from corporate one-upmanship to obtain advantage in a rivalry.

Respectfully submitted,

/s/ Richard S. Edelman
Richard S. Edelman
Aaron S. Edelman
Mooney, Green, Saindon, Murphy & Welch, P.C.
1920 L Street NW, Suite 400
Washington, DC 20036
(202) 783-0010
[email protected]
[email protected]

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1. There is no formal organization known as the “Allied Rail Unions”, rather that name has been adopted by these organizations for convenient collective reference in this proceeding; each organization is a separate participant in this proceeding.

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