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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement (Pursuant to Section
13(e) of the Securities Exchange Act of 1934)
Amendment No. 5
Chicago and North Western Transportation Company
(Name of Issuer)
Chicago and North Western Transportation Company
Union Pacific Corporation
Union Pacific Holdings, Inc.
UP Rail, Inc.
(Name of Person(s) Filing Statement)
Common Stock, Par Value $.01 Per Share
(Title of Class of Securities)
167155 10 0
(CUSIP Numbers of Class of Securities)
Robert Schmiege Richard J. Ressler, Esq.
Chairman of the Board and Chief Assistant General Counsel
Executive Officer Union Pacific Corporation
Chicago and North Western Martin Tower, Eighth and
Transportation Company Eaton Avenues
165 North Canal Street Bethlehem, Pennsylvania
Chicago, Illinois 60606 18018
(312) 559-7000 (610) 861-3200
(Name, Address and Telephone Number of Persons Authorized
to Receive Notices and Communications on Behalf of
Person(s) Filing Statement)
with copies to:
Paul J. Miller, Esq. Paul T. Schnell, Esq.
Sonnenschein, Nath & Rosenthal Skadden, Arps, Slate,
Meagher & Flom
8000 Sears Tower 919 Third Avenue
Chicago, Illinois 60606 New York, New York 10022
(312) 876-8000 (212) 735-3000
This Amendment No. 5 amends and supplements the Rule 13e-3
Transaction Statement relating to the tender offer by UP Rail,
Inc. (the Purchaser ), a Utah corporation and a wholly owned
subsidiary of Union Pacific Holdings, Inc., a Utah corporation
("Holdings"), and an indirect wholly owned subsidiary of Union
Pacific Corporation, a Utah corporation ( Parent ), to purchase
all outstanding shares of Common Stock, par value $.01 per share
(the Common Stock ), of Chicago and North Western Transportation
Company, a Delaware corporation (the Company ).
Unless otherwise indicated herein, each capitalized term
used but not defined herein shall have the meaning assigned to
such term in Schedule 13E-3 or in the Offer to Purchase referred
to therein.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The information set forth in Item 6 of Schedule 13E-3 is
hereby amended and supplemented by the following information:
On April 6, 1995, the ICC served an order which, among other
things, (i) exempts Parent from the requirement of filing
applications under 49 U.S.C. 11301 with respect to the issuance
of certain securities and/or assumption of certain obligations or
liabilities, which are expected to be required for the repayment
of borrowings made pursuant to the Facility (as previously
described in the Offer to Purchase under the caption "FINANCING
OF THE TRANSACTION"), in a principal amount not to exceed $2.3
billion and (ii) sets April 10, 1995, as the date upon which such
decision will become effective. A copy of such order is attached
hereto as Exhibit (g)(13) and incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The information set forth in Item 16 of Schedule 13E-3 is
hereby amended and supplemented by the following information:
On April 6, 1995, the ICC served an order, effective on the
same day, directing the Company to execute and deliver, before or
at the time of the consummation of the common control of the
Company's and Parent's railroad subsidiaries, certain amendments
to agreements, previously entered into between predecessors of
CNW Railway and Soo, which provide, among other things, for the
admittance of third party carriers to certain joint facilities
operated by the CNW Railway and Soo. These amendments are
intended to effectuate the condition in favor of Soo that was
granted by the ICC in its decision served March 7, 1995. A copy
of such order is attached hereto as Exhibit (g)(14) and
incorporated herein by reference.
In addition, on April 6, 1995, Parent issued a press release
announcing that, among other things, the ICC had set the final
terms of the previously imposed condition in favor of Soo to
Parent's exercise of control over the Company's railroad
subsidiaries. Parent announced that upon execution of the
amendments referred to above, Parent will have ICC authority to
exercise control over the Company, including the purchase of
Shares in the Offer and the Merger. A copy of such press release
is attached hereto as Exhibit (g)(15) and incorporated herein by
reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(g)(13) Order of the ICC, served April 6, 1995, exempting
Parent from the requirement of filing applications
under 49 U.S.C. 11301.
(g)(14) Order of the ICC, served April 6, 1995, setting
the final terms of a previously imposed condition
to Parent's exercise of control over the Company's
railroad subsidiaries.
(g)(15) Text of press release issued by Parent on April 6, 1995.
SIGNATURE
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: April 7, 1995 CHICAGO AND NORTH WESTERN
TRANSPORTATION COMPANY
By: /s/ Ronald J. Cuchna
SIGNATURE
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: April 7, 1995 UNION PACIFIC CORPORATION
By: /s/ Carl W. von Bernuth
SIGNATURE
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: April 7, 1995 UNION PACIFIC HOLDINGS, INC.
By: /s/ Carl W. von Bernuth
SIGNATURE
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: April 7, 1995 UP RAIL, INC.
By: /s/ Carl W. von Bernuth
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(g)(13) Order of the ICC, served April 6, 1995,
exempting Parent from the requirement of filing
applications under 49 U.S.C. 11301.
(g)(14) Order of the ICC, served April 6, 1995, setting
the final terms of a previously imposed
condition to Parent's exercise of control over
the Company's railroad subsidiaries.
(g)(15) Text of press release issued by Parent on April
6, 1995.
INTERSTATE COMMERCE COMMISSION
DECISION
Finance Docket No. 32679
UNION PACIFIC CORPORATION -- SECURITIES EXEMPTION
Decided: March 31, 1995
By application filed January 29, 1993, Union Pacific
Corporation (UPC) and its two class I railroad subsidiaries,
1 and Chicago and North Western Transportation Company
(CNWT)2 and its class I railroad subsidiary,3 sought
authorization under 49 U.S.C. 11343-11345 for the common
control of UP and CNW.4 The application filed January
29, 1993, as later supplemented (hereinafter referred to
1 UPC's two class I railroad subsidiaries are Union
Pacific Railroad Company (UPRR) and Missouri Pacific
Railroad Company (MPRR). UPRR and MPRR are referred
to collectively as UP.
2 The holding company now known as Chicago and North
Western Transportation Company (CNWT) was known, as
of January 29, 1993, as Chicago and North Western
Holdings Corp.
3 CNWT's class I railroad subsidiary is Chicago and
North Western Railway Company (CNW), which was
known, as of January 29, 1993, as Chicago and North
Western Transportation Company.
4 UPC, a holding company, controls UPRR and MPRR
through intermediate holding company subsidiaries.
UPRR is a wholly owned subsidiary of Union Pacific
Holdings Corp. (UPHC), which is itself a wholly
owned subsidiary of UPC. MPRR is a wholly owned
subsidiary of Missouri Pacific Corporation, which is
itself a wholly owned subsidiary of UPHC, which, as
previously noted, is a wholly owned subsidiary of
UPC. CNWT, another holding company, controls CNW
through intermediate holding company subsidiaries.
CNW is a wholly owned subsidiary of CNW Corporation,
which is itself a wholly owned subsidiary of Chicago
and North Western Acquisition Corp., which is itself
a wholly owned subsidiary of CNWT.
Finance Docket No. 32679
as the UP/CNW control application), envisioned that UP
and CNW would come under common control by converting,
from non-voting status to voting status, the 29.5% of the
common stock of CNWT then owned by UP Rail, Inc. (UPR), a
wholly owned indirect subsidiary of UPC.5 By decision
served March 7, 1995, we approved (effective April 6,
1995) common control of UP and CNW, as proposed in the
UP/CNW control application.6 We stated in the decision
(slip op. at 59) that UPC could increase its ownership of
CNWT from 29.5% to 100% without seeking approval of such
further control from this agency.
On March 16, 1995, UPR and CNWT entered into an
Agreement and Plan of Merger which provides that UPR will
commence a tender offer to acquire 100% of the outstanding
shares of CNWT's common stock (at a price of $35.00
net per share in cash), and that, following the consummation
of the tender offer, UPR will be merged into CNWT
(making CNWT a wholly owned indirect subsidiary of UPC).
The Agreement and Plan of Merger further provides that
all shares not tendered pursuant to the tender offer
will, at the effective time of the merger, be converted
into the right to receive payment of the offer price per
share. It is envisioned that, in connection with (or
possibly subsequent to) the UPR/CNWT merger, certain CNWT
indebtedness will be retired.
In a separate filing made in Finance Docket No.
32133, counsel for UPC has advised that the tender offer
commenced on March 23, 1995, and will expire on April 19,
1995.
UPC has estimated a total cost of $2.3 billion for
the purchase price of the CNWT shares, the retirement of
certain CNWT indebtedness, and the various fees and
expenses related thereto. UPC indicates that it will
5 UPR is a wholly owned subsidiary of UPHC, which is
itself a wholly owned subsidiary of UPC.
6 UP/CNW Decision No. 25, Finance Docket No. 32133, __
I.C.C.2d __ (1995).
Finance Docket No. 32679
initially finance this cost pursuant to certain credit or
other facilities (the Credit Facilities). UPC further
indicates that it expects to repay the borrowings under
the Credit Facilities through public or private long-term
or short-term borrowings or equity securities (the Refunding
Securities). If issued in the form of indebtedness,
the Refunding Securities will be issued in a principal
amount of approximately $2.3 billion at any one
time outstanding. If issued in the form of equity
securities, the Refunding Securities will consist of shares
of UPC preferred stock having a liquidation value not in
excess of $2.3 billion or shares of UPC common stock
generating net proceeds of $2.3 billion. If issued in
any combination of the foregoing, the Refunding Securities
will generate net proceeds to UPC not to exceed $2.3
billion in the aggregate. The proceeds from the Refunding
Securities may also be used to finance interest
accrued either on the Credit Facilities or on the Refunding
Securities themselves.
Section 11301 of Title 49, United States Code,
provides, inter alia, that an interstate rail carrier may
not issue certain securities or assume certain obligations
or liabilities without our approval. UPC is not
itself a carrier, but, in Union Pacific--Control--Missouri
Pacific; Western Pacific, 366 I.C.C. 462, 639-40
(1982), UPC became subject, as a carrier, to the requirement
of filing applications under 49 U.S.C. 11301 for
those issuances of securities and assumptions of obligations
which might relate to or affect the activities of
its carrier subsidiaries. UPC indicates that, although
the indebtedness borrowed under the Credit Facilities
will not be evidenced by notes or other securities subject
to 49 U.S.C. 11301, the equity issuances or borrowings
evidenced by the Refunding Securities may require
authorization thereunder.
By petition filed March 17, 1995, UPC seeks an
exemption under 49 U.S.C. 10505 from the requirements of
Finance Docket No. 32679
49 U.S.C. 11301 in regard to the issuance of the Refund-
ing Securities.7
DISCUSSION AND CONCLUSIONS
Under 49 U.S.C. 10505, we must exempt a transaction
or service if we find that: (1) regulation is not
necessary to carry out the rail transportation policy of 49
U.S.C. 10101a; and (2) either (a) the transaction or
service is of limited scope, or (b) regulation is not
necessary to protect shippers from an abuse of market
power.
A detailed review of the proposed securities issuances
is not necessary to carry out the objectives of the
rail transportation policy. Exemption will minimize the
need for Federal regulatory control over the rail
transportation system, ensure the development and continuation
of a sound rail transportation system, foster sound
economic conditions in transportation, and encourage
7 The Commission has issued a class exemption that
exempts from the requirements of 49 U.S.C. 11301
"[t]he issuance of securities and/or the assumption
of liabilities by Class I railroads and their holding
companies [subject to certain requirements and
one exception]." 49 CFR 1175.1(a) (last sentence).
UPC has not indicated why it has not invoked this
class exemption. The referenced exception is that
the class exemption does not apply to those securities
that are "directly related" to an application
filed under 49 U.S.C. 11344. 49 CFR 1175.1(b). It
is not clear whether the proposed securities issuance
is "directly related" to the UP/CNW control
application we recently approved in Finance Docket
No. 32133, and thus it is not clear whether the
class exemption would apply to the issuance of the
securities. In view of the uncertainty of the
applicability of the class exemption, we will act
upon the petition for exemption as filed.
Finance Docket No. 32679
honest and efficient management of railroads.8 The
issuance of the Refunding Securities is a transaction of
limited scope as the proceeds from such securities will
be used solely to repay the loans under the Credit Facilities
and the related expenses and refundings described
above. The issuance of the Refunding Securities, more-
over, cannot possibly have the effect of placing UP or
CNW in a position where they could exercise greater
market power vis-a-vis the shippers they serve. "Securities
issuances, standing alone, do not result in an abuse
of market power."9 In any event, we have already analyzed
the potential competitive harm from UPC's 100%
ownership of CNWT in our March 7, 1995 decision and found
that such ownership, as conditioned in that decision, was
consistent with the public interest.
Under 49 U.S.C. 10505(g), we may not relieve a
carrier of its obligation to protect the interests of
employees as required by Subtitle IV, Title 49. Labor
protection, however, is not an issue under 49 U.S.C.
11301.
UPC has requested that we accord its exemption
petition expeditious treatment and that we make this
decision effective immediately. UPC indicates that, in
view of the uncertainties presently existing in the
financial markets, it desires to be in a position to
commence the refunding of the Credit Facilities as soon
as possible, and it fears that any delay could have a
material adverse effect on the cost of such refunding.
In accordance with our customary practice, we will make
8 49 U.S.C. 10101a(2), (4), (5), and (10). See, e.g.,
Union Pacific Corporation--Control--Skyway--Freight
Systems, Inc., Finance Docket No. 32011 (ICC served
Dec. 18, 1992) (sip op. at 4-5).
9 Union Pacific Corporation -- Securities Exemption,
Finance Docket No. 31000 (Sub-No. 1) (ICC served
Dec. 9, 1986) (slip op. at 3).
Finance Docket No. 32679
this decision effective on 3 days' notice so that UPC may
act expeditiously.10
This action will not significantly affect
either the quality of the human environment or the
conservation of energy resources.
It is ordered:
1. Pursuant to 49 U.S.C. 10505, we exempt Union
Pacific Corporation from the requirements of 49 U.S.C.
11301 with respect to the issuance of the above-described
securities in a principal amount not to exceed $2.3
billion.
2. Notice will be published in the Federal Register
3. This decision will be effect on April 10, 1995.
4. Petitions to reopen must be filed by April 27,
1995.
By the Commission, Chairman Morgan, Vice Chairman
Owen, and Commissioners Simmons and McDonald.
Vernon A. Williams
(SEAL) Secretary
10 Union Pacific Corporation -- Securities Exemption,
Finance Docket No. 31000 (Sub-No. 1) (ICC served
Dec. 9, 1986) (slip op. at 3).
INTERSTATE COMMERCE COMMISSION
Finance Docket No. 32133
UNION PACIFIC CORPORATION, UNION PACIFIC RAILROAD COMPANY
AND MISSOURI PACIFIC RAILROAD COMPANY--CONTROL--CHICAGO
AND NORTH WESTERN TRANSPORTATION COMPANY AND CHICAGO AND
NORTH WESTERN RAILWAY COMPANY
Decision No. 26
Decided: April 4, 1995
INTRODUCTION
In Decision No. 25 in this proceeding, served on
March 7, 1995, the Commission approved the proposed
common control of Union Pacific Railroad Company (UPRR),
Missouri Pacific Railroad Company (MPRR), and Chicago and
North Western Railway Company (CNW), as requested by
those entities, Union Pacific Corporation (UPC), and
Chicago and North Western Transportation Company
(Holdings) (collectively, the primary applicants).(1)
We imposed certain conditions on our approval of
common control. One required the termination of certain
contractual provisions contained in joint facility
agreements governing two line segments (the Polo and
Clinton segments) along Soo Line Railroad Company's (Soo)
Twin Cities-Kansas City route. The provisions grant CNW
(soon to be controlled by UP) the right to veto any
attempt by Soo to transfer an interest in those segments
to another carrier or to grant another railroad access to
them by virtue of trackage or haulage rights. The
Commission determined that if the veto power remained,
the proposed common control of UP and CNW would have an
anticompetitive impact in the Upper Midwest-South Central
corridor, because the veto power would interfere with
Soo's ability to provide an effective competitive
response to the UP/CNW system.
In Decision No. 25, we directed CNW and Soo, by
March 17, 1995, either to (1) submit jointly the agreed-
upon details of the lifting of the veto power on the Polo
and Clinton line segments, or (2) in the event they were
unable to agree to the terms of Soo's condition, each
submit its own proposal as to how it would implement
Soo's condition. The Commission would then have time to
choose the better of the proposals and make it effective
on the date that Decision No. 25 is effective. The
primary applicants and S00 both filed their proposals
with the Commission on March 17, 1995. The primary
applicants designated their pleading as UP/CNW-132; Soo
designated its pleading as S00-9. On March 23, 1995, Soo
submitted a pleading entitled "Reply of Soo Line Railroad
Company to Applicants' Submission as to Implementation of
Soo Condition." (S00-10). On March 24, 1995, the
primary applicants filed a pleading entitled "Applicants'
1 In this decision, we will refer to the primary
applicants in their separate capacities as UP and
CNW.
Finance Docket No. 32133
Reply as to Implementation of Soo Condition." (UP/CNW-
133).(2)
ARGUMENTS AND PROPOSAL SUBMITTED BY THE
PRIMARY APPLICANTS(3)
The primary applicants note that Soo's Kansas City-
Chicago line includes two joint facilities with CNW, the
Polo facility and the Clinton facility. The Polo
facility consists of 37 miles of paired tracks, one of
which CNW owns and the other of which Soo owns, and 5
miles of jointly-owned track. Currently, neither Soo nor
CNW can transfer its interest in the Polo facility, or
admit other railroads to the facility via trackage or
haulage rights, without the other's consent. The Clinton
facility is an interlocker and a 1400-foot approach
track, both of which CNW owns. Currently, Soo cannot
admit third parties to the Clinton facility or transfer
its rights under the agreement without CNW's permission.
According to the primary applicants, Soo has already
acknowledged that CNW, as an independent railroad not
controlled by UP, already had an incentive to veto Soo's
admission of third parties to the joint facilities. In
fact, CNW did veto a sale of Soo's line to SP. The
primary applicants state that Soo contended in this
proceeding that UP/CNW common control would have an
anticompetitive effect because it would increase the
amount of traffic as to which a UP/CNW system would have
a veto incentive. The primary applicants contend that
Soo argued that the broader veto incentive would reduce
Soo's ability to work with connections at Kansas City to
provide new seamless competitive responses to UP/CNW
single-line or near-single-line service in the Upper
Midwest-South Central market. The primary applicants
argue that it was to alleviate this competitive problem
that Soo proposed that the Commission require the primary
applicants to negotiate "appropriate" modifications to
the Polo and Clinton agreements.
The primary applicants allege that they have met
with Soo and attempted to reach agreement as to the terms
for implementation of the condition, and have reached
agreement as to a number of matters, but have thus far
been unable to agree as to certain issues regarding the
2 On March 27, 1995, the Iowa Department of
Transportation (IADOT) also submitted a pleading
entitled "Reply of the Iowa Department of
Transportation to Proposed Terms for Implementation
of Polo/Clinton Condition." IADOT supports
implementation of Soo's proposal, and rejection of
the primary applicants'
3 The arguments discussion in this section come from
both UP/CNW-132 and UP/CNW-133.
Finance Docket No. 32133
scope of the condition.(4) The primary applicants
propose several terms to implement the Soo condition.
They note that their suggested terms for the two
facilities are substantially identical, differing only as
necessary to reflect the fact that, in contrast to the
Polo facility, where CNW and Soo each currently have
ownership interests and veto rights, CNW owns 100% of the
Clinton facility and Soo does not have any right to veto
sales by CNW of the Clinton facility or admissions by CNW
of third railroads to it. The primary applicants'
proposal is as follows:
As to the Polo Facility:
1. Subject to the provisions of paragraphs 2-5
below, Soo or CNW may, without the consent of
the other, (a) transfer its interest in the
facility and its rights under this Agreement;
(b) grant trackage rights over the facility;
and (c) handle traffic over the facility for
the account of others via haulage.
2. Soo or CNW may transfer its interest in the
facility and its rights under this Agreement or
grant access to the facility via trackage
rights or haulage, without the consent of the
other, (a) only to railroads that operate south
from Kansas City (i.e., Burlington Northern
(BN), Kansas City Southern (KCS), Santa Fe,
Southern Pacific (SP), UP and any future
successors to their lines south from Kansas
City), and (b) only to handle traffic that
moves between a point in the Upper Midwest not
served by the other party, or the Twin Cities
or Chicago, on the one hand, and a point in the
South Central region, on the other hand.
"Upper Midwest" means Montana, North Dakota,
South Dakota(5), Minnesota, Iowa, Wisconsin and
4 The primary applicants are concerned, they allege,
because after the issuance of Decision No. 25, UPC
and Holdings agreed on the terms of an acquisition
transaction under which UP Rail, Inc., a subsidiary
of UPC, will tender for all of the common stock of
Holdings at $35 per share, and will then be merged
into Holdings. The tender offer is to be
consummated on April 21, 1995, and its consummation
is conditioned on the finality of the Commission's
control order. Since the primary applicants are
moving quickly to achieve the benefits of control,
they allege that it is important that the Soo
condition become effective on April 6, 1995, and ask
that the Commission resolve disputes about the Soo
condition by that date.
5 The primary applicants did not originally include
South Dakota in their definition of "Upper Midwest."
(continued...)
Finance Docket No. 32133
Illinois, and U.S.-Canada rail gateways located
in Montana, North Dakota, Minnesota, and
Wisconsin. The "South Central" region means
Kansas, Oklahoma, Texas, Missouri, Arkansas,
Louisiana, Tennessee and Mississippi, and the
U.S.-Mexico border crossings located in Texas.
3. For traffic that Soo or CNW admits to the
facility via trackage rights or haulage, the
other party shall receive a fee of $3.15 per
car, escalated using RCAF (unadjusted), any
successor index, or, if there is no successor
index, an agreed index.
4. One party's admission of additional users to
the facility must not impede the other party's
ability to operate over the facility. One
party's admission of a user shall be
conclusively presumed not to impede the other
party's ability to operate if the total
projected number of trains of all railroads
using the facility, over a 30-day period,
following said admission shall not exceed an
average of 35 per day. Improvements necessary
to accommodate admitted parties must be paid
for solely by the admitting party, and shall be
owned by the party on whose right-of-way they
are constructed, or in the case of jointly-
owned right-of-way, shall be jointly owned by
CNW and Soo; the cost of maintaining such
improvements shall be shared in the same
fashion as all maintenance costs under this
Agreement.
5. The traffic of any railroad admitted to the
facilities via trackage rights or haulage shall
be accounted for as if it were the traffic of
the admitting party, and the admitting party
shall be jointly and severally liable, together
with the admitted railroad, to the non-
admitting party for M&O payment and liability
associated with that traffic, and for the fee
provided for in paragraph 3 above. The
admitting party shall collect these sums from
the admitted railroad and remit them to the
non-admitting party; however, the non-admitting
party shall be free to proceed directly against
the admitted railroad. The admitted railroad
must agree to be bound by all the terms of this
Agreement. The rights of an admitted railroad
or a railroad to which Soo or CNW transfers its
interest in the facilities and its rights under
this Agreement shall be no greater than the
5(...continued)
Soo pointed this out (SOO-10 at 14), and the primary
applicants amended the definition to include South
Dakota (UP/CNW-33 at 8).
Finance Docket No. 32133
rights under this Agreement of the admitting or
transferring party.
As to the Clinton Facility:
1. Subject to the provisions of paragraphs 2-5
below, Soo may, without the consent of CNW, (a)
transfer its rights under this Agreement; (b)
grant trackage rights over the facility; and
(c) handle traffic over the facility for the
account of others via haulage.
2. Soo may transfer its rights under this
Agreement or grant access to the facility via
trackage rights or haulage, without the consent
of CNW, only to railroads that operate south
from Kansas City (i.e., BN, KCS, Santa Fe, SP,
UP and any future successors to their lines
south from Kansas City), and only to handle
traffic that moves between a point in the Upper
Midwest not served by the other party, or the
Twin Cities or Chicago, on the one hand, and a
point in the South Central region, on the other
hand. "Upper Midwest" means Montana, North
Dakota, South Dakota, Minnesota, Iowa,
Wisconsin and Illinois, and U.S.-Canada rail
gateways located in Montana, North Dakota,
Minnesota, and Wisconsin. The "South Central"
region means Kansas, Oklahoma, Texas, Missouri,
Arkansas, Louisiana, Tennessee and Mississippi,
and the U.S.-Mexico border crossings located in
Texas.
3. For traffic that Soo admits to the facility via
trackage rights or haulage, CNW shall receive a
fee of $0.10 per car, escalated using RCAF
(unadjusted), any successor index, or, if there
is no successor index, an agreed index.
4. Soo's admission of additional users to the
facility must not impede CNW's ability to
operate over the facility. Soo's admission of
a user shall be conclusively presumed not to
impede CNW's ability to operate if the total
projected number of trains of all railroads
using the facility, over a 30-day period,
following said admission shall not exceed an
average of 35 per day. Improvements necessary
to accommodate parties admitted by Soo shall be
paid for solely by Soo, and shall be owned and
maintained by CNW, with maintenance costs
apportioned as presently provided for in the
Agreement.
5. The traffic of any railroad that Soo admits to
the facilities via trackage rights or haulage
shall be accounted for as if it were the
traffic of Soo, and Soo shall be jointly and
severally liable, together with the admitted
Finance Docket No. 32133
railroad, to CNW for M&O payments and liability
associated with that traffic, and for the fee
provided for in paragraph 3 above. Soo shall
collect these sums from the admitted railroad
and remit them to CNW; however, CNW shall be
free to proceed directly against the admitted
railroad. The admitted railroad must agree to
be bound by all terms of the Agreement. The
rights of a railroad admitted to the facility
by Soo shall be no greater than Soo's rights
under the Agreement.
It is the primary applicants' position that
these provisions fully comply with the requirements of
reciprocality. They note that Soo's veto power on the
Polo facility is eliminated to the same extent as CNW's,
and where Soo has an ownership interest in the Polo
facility, it receives the same compensation from
railroads admitted without its consent as does CNW.
In the primary applicants' opinion, the parties
agree regarding the substance of paragraphs 3, 4 and 5
pertaining to each facility. The disagreement stems from
the substance of paragraph 2. The primary applicants
contend that Soo, contrary to the position which it has
advanced throughout this proceeding, is attempting to
argue that the scope of the condition should be
completely uncoupled from the scope of the competitive
harm it alleged and the Commission found. According to
the primary applicants, Soo is now claiming that no
geographic or carrier limitations should apply to Soo's
ability o transfer its interest in the joint facilities,
over CNW's objection. The primary applicants state their
belief that their limitations appropriately tailor the
condition to the competitive harm alleged by Soo and
found by the Commission, and even go beyond what is
necessary to address that harm. Without the
restrictions, the primary applicants maintain, the
condition would be impermissibly overbroad.
The primary applicants note that the Commission
has held that conditions must be narrowly tailored to
address the specific anticompetitive effect of the
transaction, and must be rejected if they go beyond that
purpose. According to the primary applicants, the
Commission made this clear when it enumerated its
criteria for the imposition of conditions to address
anticompetitive consequences for mergers and control
transactions.(6) The primary applicants discuss cases
6 UP/CNW-132 at 11, citing Union Pacific Corp.,
Pacific Rail System, Inc., & Union Pacific R.R. --
Control -- Missouri Pacific Corp. & Missouri Pacific
R.R., 366 I.C.C. 462, 562-65 (1982), aff'd in
relevant part sub nom. Southern Pacific
Transportation Co. v. ICC, 736 F.2d 708 (D.C. Cir.
1984), cert. denied, 469 U.S. 1208 (1985)
(UP/MP/WP).
Finance Docket No. 32133
which allegedly support their contention that the
condition, without the geographic and carrier parameters
they advocate, is overbroad and should be rejected.(7)
It is the primary applicant's position that the
parameters they recommend in paragraph 2 properly tailor
the Soo condition. First, state the primary applicants,
Soo expressly defined the market in which it was claiming
a competitive harm as the Upper Midwest-South Central
market. This is why the primary applicants specify in
paragraph 2 the traffic that Soo (and, for the Polo
facility, CNW) may, under the condition, allow another
railroad to handle over the joint facilities without the
consent of the other owner as Upper Midwest-South Central
traffic.
The primary applicants also note that CNW
already had every incentive to exercise its veto power
over admissions of third parties with respect to Upper
Midwest traffic bound to or from points that CNW serves.
The primary applicants allege that in order to find a
nexus between its condition and the control transaction,
Soo "resorted to" arguing that, for traffic bound to or
from Upper Midwest points not served by CNW, a UP-CNW
system might have an incentive to veto the admission of
third parties even though CNW today would not. According
to the primary applicants, the Commission accepted this
Soo contention in finding a nexus between the control
transaction and Soo's condition request.
The primary applicants explain that the above
stated facts led to the language in paragraph 2 limiting
removal of the veto power to traffic bound to or from
points in the Upper Midwest not served by the other
party. The primary applicants note that Chicago and the
Twin Cities are also included, despite the fact that
traffic to or from these CNW-served points does not fit
Soo's theory of competitive harm, in order to ensure that
the largest traffic points in the Upper Midwest can be
served by any railroad unilaterally admitted by Soo (and,
for the Polo facility, CNW), and that the condition is
therefore clearly workable. Further, note the primary
applicants, traffic bound to or from South Central points
7 UP/CNW-132 at 11-14, citing Santa Fe Southern
Pacific Corp. -- Control -- Southern Pacific
Transportation Co., 2 I.C.C. 2d 709, 855 (1986);
Union Pacific Corp., Union Pacific R.R. and Missouri
Pacific R.R. -- Control -- Missouri-Kansas-Texas
R.R., 4 I.C.C.2d 409, 437 (1988), petition for
review dismissed, 883 F.2d 1079 (D.C. Cir. 1989);
Rio Grande Industries, Inc., SPTC Holding, Inc., &
Denver & Rio Grande Western R.R. -- Control --
Southern Pacific Transportation Co., 4 I.C.C. 2d
834, 855 (1988); Wisconsin Central Transportation
Corp. -- Continuance In Control -- Fox Valley &
Western, Ltd., 9 I.C.C.2d 233, 246 (1992) and 9
I.C.C.2d 730, 745 n.17 (1993).
Finance Docket No. 32133
not served by UP is not excluded under their proposal,
event though such traffic would be competitively
unaffected under Soo's theory.
According to primary applicants, Soo emphasized
that its competitive claims rested on the notion that the
alleged broader UP-CNW veto incentive under the Polo and
Clinton Agreements would impede Soo's ability to work
with its southern connections at Kansas City to match the
"seamless" Upper Midwest-South Central service that UP-
CNW would be able to offer. This is the reason that
paragraph 2 specifies that Soo (and, for the Polo
facility, CNW) may transfer its interest in the
facilities or grant access to the facilities via trackage
rights or haulage, without the consent of the other, only
to the railroads that serve Kansas City from the south --
BN, KSC, Santa Fe, SP and UP.
ARGUMENTS AND PROPOSAL SUBMITTED BY SOO(8)
Soo notes that the Commission agreed with Soo
that the Polo/Clinton restrictions could interfere with
Soo's effecting a competitive response to the combined
UP/CNW system. Soo states that the Commission determined
that it would deal with that problem by "imposing a
condition, as requested by Soo." (emphasis supplied by
Soo). According to Soo, the Commission explicitly
granted "the condition requested by Soo" and found that
the condition is consistent with the public interest.
Soo notes that its requested condition never referenced
particular carriers or traffic movements. The Commission
itself, Soo states, did not impose any qualifications on
the condition.
It is Soo's position that its condition
requires the primary applicants to amend the Polo and
Clinton Agreements "[1] to permit Soo to transfer Soo's
interest in the trackage governed by those agreements,
[2] to admit others to use the trackage governed by those
agreements, and [3] to permit Soo to handle traffic for
the account of others over the trackage governed by those
agreements," without UP/CNW's prior consent.(9)
According to Soo, the parties have reached no
agreement regarding language to implement the
8 The arguments discussed in this section come both
from SOO-9 and SOO-10.
9 Soo argues that the need for the condition is
greater than it was on March 7, 1995, because of
UP's intention to acquire 100% of CNW's voting
stock. Soo states that UP and CNW will provide pure
"single-line" service to shippers. Therefore,
argues Soo, its is now more important that the Polo
and Clinton restrictions be removed, so that Soo can
work with other carriers to compete with the
"massive" UP/CNW system.
Finance Docket No. 32133
Polo/Clinton condition, despite attempts to do so. Soo
asserts that the draft proposal which it originally sent
to CNW consisted of draft supplements to the Polo and
Clinton Agreements, which allegedly implemented precisely
the terms listed above and were narrowly tailored to
accomplish only that purpose.
It is Soo's position that UP, in contrast,
proposed a set of terms designed to defeat the condition
rather than to implement it. Soo contends that UP
exploited the Commission's order directing the parties to
agree to implementing terms by seeking to renegotiate the
nature of the condition itself. Soo notes that Decision
No. 25 neither authorized nor permitted the parties to
redefine the scope of the Polo/Clinton condition in the
guise of proposing language for its implementation.
According to Soo, UP designed its terms to preserve, for
the most part, UP/CNW's veto power over transactions
involving the Polo and Clinton lines. Soo notes that UP
sought to dictate to Soo which carriers Soo may admit to
the Polo/Clinton segments and what traffic those carriers
can handle. Also, alleges Soo, UP insisted that the
condition terminate, and that the veto power be restored
if Soo ever sells its interest in the lines to another
carrier.(10)
It is Soo's position that these restrictions
would render the Polo-Clinton condition ineffective. Soo
points out that under the primary applicants' terms,
UP/CNW's veto power would be removed only for traffic
that:
(1) Both originates and terminates in the Upper
Midwest-South Central corridor; and
(2) Originates or terminates in the Upper Midwest
region at a point not served by CNW (except the Twin
Cities and Chicago); and
(3) Is handled by carriers who operate south of
Kansas City (i.e., BN, KCS, Santa Fe, SP or UP).
Soo states that the veto power would be
preserved for all traffic that moves in or through the
Upper Midwest-South Central corridor but does not
originate or terminate at the particular points, or move
over the lines of the particular carriers, specified by
the primary applicants. Except for certain traffic
originating or terminating in the Twin Cities and
Chicago, the condition would not allow "seamless"
competition for any traffic handled by the UP/CNW system
to or from points north of Kansas City. Because Soo and
UP do not presently serve any common point north of
Kansas City other than Chicago, the primary applicants
10 The primary applicants' proposal does not reflect
this alleged restriction. We will assume that it is
no longer at issue.
Finance Docket No. 32133
are essentially proposing that Soo be permitted to grant
access to its Kansas City line only to a limited list of
"UP-approved" carriers, and then only so long as those
carriers agree not to use such access to compete with
UP/CNW for traffic to/from any Midwestern station other
than the Twin Cities or Chicago. Under this approach,
Soo would be permitted to offer "seamless" service in
competition with UP/CNW only for traffic moving to or
from the Twin Cities or Chicago, and then only if the
traffic is also moving to or from a point in the South
Central states. Seamless service in competition with
UP/CNW for traffic moving to or from any other point
north of Kansas City would be prohibited.
Soo notes that the geographic restrictions
would not permit Soo and its connections to handle even
the limited body of traffic that the primary applicants
Claim the Commission had in mind when imposing the
Polo/Clinton condition -- the cars that move between UP-
served points and points not served by CNW. According to
Soo, nearly 40% of those cars move to or from points
beyond the "South Central" states. It is Soo's position
that it never focused its theory of competitive harm
exclusively on traffic moving between UP-served points
south of Kansas City and points not served by CNW north
of that gateway.
Soo also claims that the primary applicants'
proposal to extend the restrictions to a buyer of Soo's
Kansas City line effectively precludes the possibility of
any such sale transaction. Furthermore, it is Soo's
position that the restrictions would render any grant of
trackage rights to another carrier over Soo's Kansas City
line incapable of being implemented. Soo maintains that
the primary applicants' proposal would make viable and
efficient trackage rights operations on Soo's Kansas City
line virtually impossible, by requiring the tenant
carrier to segregate "permitted" and "prohibited" freight
traffic, and permitting such a carrier to handle only the
limited "permitted traffic in its trains moving across
the Polo or Clinton segments. This, argues Soo, would
lead to disputes over interpretation and application of
the restrictions which the primary applicants propose,
and would require oversight of the condition by the
Commission.
Soo notes that the primary applicants could
have proposed their restrictions in the evidentiary phase
of this proceeding, but elected not to do so, and instead
simply opposed Soo's condition. If they had submitted
testimony allegedly supporting their proposed limitations
during the evidentiary phase of the proceeding, Soo would
have been able in its rebuttal to submit evidence
addressing the impact of those proposed restrictions.
Soo states that its proposal implements the
condition in accordance with the Commission's specific
parameters, and states that the proposed implementing
terms which it submits should be adopted in their
Finance Docket No. 32133
entirety.(11) Soo's proposal would terminate the veto
power embodied in the Polo an Clinton agreements by
deleting the provisions requiring Soo to obtain CNW's
permission to admit third parties to the subject trackage
or to sell Soo's interest therein. Soo would replace
those provisions with language incorporating the
essential terms required by Decision No. 25.
Soo proposes the following provisions to the
Polo and Clinton Agreements in order to implement the
condition.(12) For the Clinton Agreement, with regard to
termination of the contract provisions restricting
transfer of Soo's interest in the covered trackage, Soo's
proposal states:
This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their respective
successors, lessees and assigns. CNW and Soo each
shall have the right to sell, assign, or transfer
any interest or right given it under this Agreement
without the consent of the other party.
Similarly, Soo proposes amendments to the Polo
Agreements eliminating the existing transfer limitations
while taking account of the joint facility arrangement
under those agreements:
11 The Commission ordered that the Polo/Clinton
condition must (1) "Incorporate the essence of the
proposed condition," (2) require reciprocal
implementation," and (3) take effect immediately
upon UP's exercise of control over CNW. The
Commission defined the essence of the proposed
condition as follows:
The essence of the proposed condition is that
Soo must be allowed (1) to transfer its
interest in the trackage governed by the
Polo/Clinton Agreements, (2) to admit others to
use the trackage governed by those agreements,
and (3) to handle traffic for the account of
others over the trackage governed by those
agreements.
Soo attaches its proposal, consisting of 2
supplemental agreements amending the Polo and
Clinton Agreements, to SOO-9. Soo attaches revised
supplemental agreements to SOO-10. In Soo's
opinion, execution of these revised supplemental
agreements before consummation of the control
transaction would implement the Polo/Clinton
condition without further Commission action.
12 The examples given are excerpts only. The full text
of Soo's proposal is found in Appendix A to this
decision.
Finance Docket No. 32133
CNW and SOO each shall have the right to sell,
assign or transfer all or any part of its interest
in the tracks and facilities governed by this
Agreement without the consent of the other party;
provided, however, that the party to which such
tracks or facilities are sold, assigned or
transferred shall agree in writing, without
condition or reservation, to be bound by, and to
assume the obligations of CNW or SOO (as applicable)
with respect to such tracks or facilities under this
Agreement.
In order to incorporate both the termination of
the contract provisions prohibiting Soo's admission of
third parties to, and handling of traffic for the account
of other carriers over, the subject trackage, Soo
proposes to include the following provision in the
Clinton Agreement:
SOO and CNW each shall have the right to admit other
parties to the use of the tracks and facilities
governed by this Agreement, and to handle traffic
for the account of other parties over the tracks and
facilities governed by this Agreement.
For each of the Polo Agreements, Soo proposes
the following amending language to eliminate the current
reciprocal restrictions on third party access:
CNW and SOO each shall have the right to admit other
parties to the use of all or any part of the tracks
and facilities governed by this Agreement without
the consent of the other Party. CNW and SOO each
shall have the right to handle traffic for the
account of other parties over the tracks and
facilities governed by this Agreement without the
consent of the other party.
Soo also notes that its proposal satisfies the
Commission directive that termination of the veto power
in the agreements be reciprocal. Both CNW and Soo would
surrender their veto power under the Polo and Clinton
Agreements. Soo proposes to ensure that the termination
of the veto power shall take effect immediately upon
consummation of UP/CNW common control by amending the
ordering paragraphs of Decision No. 25 to direct CNW to
execute and deliver to Soo the proposed supplements to
the Polo and Clinton Agreements before consummation of
the control transaction.
Soo also suggests another allegedly necessary
provision. Soo states that it fears that UP may
challenge the condition before a reviewing court after it
exercises the control authority which the Commission
approved subject to Soo's requested condition. Soo notes
that the Commission and the courts recognize that an
applicant's consummation of a Commission approved merger
or control transaction constitutes unequivocal acceptance
of the conditions which the Commission attached as part
Finance Docket No. 32133
of its approval of the transaction.(13) Therefore, Soo
argues, if UP consummates control of CNW before
completing judicial review proceedings, it cannot
lawfully challenge the validity of the Polo/Clinton
condition in such proceedings. Soo requests that the
Commission inform UP that it cannot assume control
authority while challenging the preconditions to the
exercise of such authority.(14)
With regard to the primary applicants',
proposal that admitting and admitted carriers be jointly
and severally responsible for "M&O" payments and
liability associated with admitted traffic, Soo states
that it does not oppose the principle. Soo includes
implementing language in its revised supplements to the
Polo and Clinton Agreements which it attaches to SOO-10.
However, Soo is concerned about paragraph 4 of
the primary applicants' proposal, particularly with
regard to the Clinton segment. According to Soo, in
paragraph 4 the primary applicants are seeking to create
13 SOO-9 at 11, citing New Orleans & Northeastern
Railroad Co. v. Bozeman, 312 F.2d 264, 268 (5th
Cir. 1963); Great Northern Pacific & Burlington
Lines, Inc. -- Merger -- Great Northern Railway Co.,
348 I.C.C. 821, 828 (1977), remanded on other
grounds sub nom. Chicago, Milwaukee, St. Paul &
Pacific Railroad Co. -- Trackage Rights --
Louisville & Nashville Railroad Co., 342 I.C.C. 578,
584, aff'd sub nom. Louisville & Nashville Railroad
Co. v. United States, 369 F. Supp. 621 (W.D. Ky.)
(3-judge court), aff'd mem., 414 U.S. 1105 (1973).
14 The language suggested by Soo provides that
"[c]onsummation of the common control of UP and CNW
by the primary applicants, as authorized in this
decision, shall constitute on the part of such
primary applicants acquiescence in and irrevocable
assent to the conditions stated in this decision."
Soo notes that similar provisions have been included
as conditions in other rail merger or control
decisions. Soo-9 at 13, citing Norfolk & Western
Railway Co. & New York, Chicago & St. Louis Railroad
Co. -- Merger, 324 I.C.C. 1, 14 & (1964), modified
on other grounds, 336 I.C.C. 148 (1969); North
Western Employees Transportation Corp. -- Purchase -
- Chicago & North Western Railway Co., 342 I.C.C.
58, 100 (1972); Louisville & Nashville Railroad Co.
-- Merger -- Monon Railroad, 338 I.C.C. 134, 200,
202 (1970), aff'd sub nom. Louisville & Nashville
Railroad Co. v. United States, 369 F. Supp. 621
(W.D. Ky. 1973); Great Northern Pacific & Burlington
Lines, Inc. -- Merger -- Great Northern Railway Co.,
331 I.C.C. 228, 359 (1967), modified on other
grounds, 331 I.C.C, 869, aff'd sub. nom. United
States vs. United States, 296 F. Supp. 853 (D.D.C.
1968) (3-judge court) aff'd, 396 U.S. 491 (1970).
Finance Docket No. 32133
a new basis for vetoing "seamless" service proposals
which Soo might initiate, that basis being that the
admission of another carrier's traffic would impede the
primary applicants' own operations. Soo alleges that the
parties discussed adopting such a provision in their
negotiations, but that Soo did not agree to the terms set
forth in Paragraph 4 of the primary applicants'
proposals.
Soo states that it is particularly concerned
that the 35-trains-per-day threshold requested by the
primary applicants might preclude the admission of a new
carrier to the Clinton segment. According to Soo, the
primary applicants have not stated the number of trains
that now operate daily over the Clinton crossing: Soo
believes that the number might be at or near 35 per day.
Soo asserts that the primary applicants have offered no
evidence documenting the basis for their proposed
maximum-train limitation, except for the allegation that
their figure represents their assessment of the present
capacity of the facilities. It is Soo's position that,
without more evidence regarding the capacity of the Polo
and Clinton segments and the number of trains currently
operated thereon, the Commission should not impose
operating restrictions that could serve no purpose other
than to increase the primary applicants', veto power on
the Polo and Clinton lines.(15)
15 In UP/CNW-133, the primary applicants respond to
Soo's anxiety regarding this provision, stating that
the conclusive presumption feature was added at
Soo's request to the primary applicants' proposed
terms for both the Polo and the Clinton facilities.
The primary applicants state that they can delete
the 35-trains-per-day provision if Soo prefers. The
primary applicants add that it is their
understanding that Soo does not quarrel with the
basic propositions that one party's admission of
third railroads shall not impede the other party's
ability to operate over the facility, and that
improvements necessary to accommodate third
railroads admitted by a party shall be paid for by
that party.
Finance Docket No. 32133
DISCUSSION AND CONCLUSIONS
When we granted Soo's request that UP-CNW
common control be conditioned upon the modification of
the Polo and Clinton agreements, we expected certain
eventualities, which we described in our decision
approving the proposed common control. In allowing the
parties the opportunity to negotiate the implementation
of the condition, it was our intention to give them as
much latitude as possible, but we made clear our
expectations that certain results would follow. Those
expectations, found on p. 90 of Decision No. 25, were,
essentially, that the settlement would incorporate the
essence of the proposed corporation (as defined above);
require reciprocal implementation; and provide that the
CNW veto power would cease at the moment UP Rail, by
converting to voting status its non-voting stock interest
in the CNW holding company, takes control of CNW. We
further defined the requirement of reciprocal
implementation by stating in a footnote that identical
treatment should be accorded to Soo's veto power on the
Polo facility.
It appears that the parties have made progress
in agreeing upon certain terms of the implementation of
the condition. However, the geographic and carrier
limitations proposed by the primary applicants cause
contention between Soo and the primary applicants. A
careful reading of Decision No. 25 should indicate to the
parties that we did not envision such limitations on the
condition when we agreed that the condition was
appropriate and directed the parties to negotiate the
details of its implementation. In discussing the Polo
and Clinton facilities, at p. 89, we stated as follows:
By and large, UP/CNW common control will have a
procompetitive impact in the Upper Midwest-South
Central corridor. The UP/CNW joint-line routing
will become more efficient; UP and CNW will be able
to innovate, and to improve the quality of the
services they offer shippers. And, in typical pro-
competitive fashion, the increased efficiency of the
UP/CNW joint-line routing is likely to trigger
competitive responses by other railroads operating
in the Upper Midwest-South Central corridor.
One important railroad operating at the north end of
that corridor is Soo. It is not the only independent
railroad operating at the north end of that
corridor. And its Kansas city line, admittedly, is
not the only independent line over which traffic in
that corridor can be transported. But we think that
Soo in general, and its Kansas City line in
particular, are an important part of the competitive
response to the instant transaction that will be
mounted by independent railroads operating in the
Upper Midwest-South Central corridor.
Finance Docket No. 32133
It is easy to perceive that the Commission
based its concern about Soo's continued viability in the
Upper Midwest-South Central corridor on the logic of the
supposition that the combined UP/CNW system would have
more incentive to use the veto power on the Polo and
Clinton segments in that corridor. However, nowhere in
tho preceding discussion did we indicate that lifting the
veto power only for traffic moving within that corridor
would be appropriate. We did not state that competitive
responses would be effected by other railroads operating
in the Upper Midwest-South Central corridor and only in
that corridor. We noted that Soo's Kansas City line is
particularly (not exclusively) important in the potential
competitive response to the UP/CNW transaction that will
be mounted by independent railroads operating in the
Upper Midwest-South central corridor. However, we did
not indicate that those independent railroads would be
operating only in that corridor, or moving from one end
of the corridor to the other and nowhere else.
Language elsewhere in the decision indicates
that we did not envision the carrier limitations which
primary applicants are proposing. When we addressed
whether or not the transaction would threaten Chicago,
Central & Pacific's (CC&P's) essential services, and
concluded that it would not, at p. 93, we stated:
. . . CC&P is, to a certain extent, a feeder line,
and it is therefore very much dependent on its
connections with larger class I railroads. CC&P, by
way of example, originates a good deal of grain,
particularly in Iowa and in southern Minnesota.
Such grain as CC&P cannot terminate on its own lines
must necessarily be interchanged with another
carrier. Potential interchange partners include,
among others, UP, BN, KCS [footnote omitted], and
Soo. These connections will continue to exist with
common control, and CC&P can use then to its
advantage (the Soo connection should improve with
the elimination of the CNW veto power on the Polo
and Clinton facilities). It CC&P can provide
efficient grain origination services, it will find
that its several class I connections will be ready
partners.
This language demonstrates that we did not
expect carrier restrictions on the condition, do not
believe that such restrictions embody the essence of the
condition, and in fact expect a variety of creative
competitive responses from Soo and its connections. We
believe Soo argues persuasively that the restrictions
proposed by primary applicants in paragraph 2 of their
proposal would unduly restrain Soo in crafting its
competitive responses. We will not approve the
territorial and carrier restrictions which the primary
applicants advocate.
The primary applicants argue vehemently that,
without the restrictions they propose, the condition will
Finance Docket No. 32133
be too broad and overreaching. We do not agree. Under
our standards for imposing conditions, the
anticompetitive problem leading to the condition .must be
related to the proposed common control transaction. As
the Commission articulated in Decision No. 25, it is.
The common control of UP and CNW could lead to some
circumstances where the combined entity could exercise
the veto power when CNW alone would not have. Without
the protective condition, this could interfere with
competitive responses from other railroads, including
Soo. There is a clear nexus between the transaction and
the ameliorative condition. With that established, there
is no rule that the condition must be the least
restrictive possible: rather, it must be broad enough to
rectify the competitive problem.
We believe that Soo's supplemental agreements,
as submitted, adequately incorporate the essence of the
imposed condition, as instructed. Soo has included some
details in those agreements which, while not central to
the essence of the condition, appear not to be
controversial. These include the $3.15 per car rental
fee on the Polo facility, certain provisions pertaining
to liability associated with admitted traffic, and
responsibility for M&O payments. We do not object to the
inclusion of those provisions in the amendments to the
Polo and Clinton Agreements.
Soo's supplemental agreements do not address
the possible impediment of CNW's use of the lines when
Soo admits third parties onto the Polo and Clinton
facilities, or the possible impediment of Soo's use of
the line when CNW admits third parties onto the Polo
facility. The primary applicants have stated their
willingness to revise this proposed provision by deleting
the 35train-per-day limitation. We will decline to order
the parties to include a provision addressing the
impediment of one party's operations when the other party
admits third parties onto the line, as the record is
insufficient to allow formulation of specific terms.
And, we do not believe that such a provision is necessary
to incorporate the essence of the proposed condition.
Moreover, the parties have some agreement on the
impropriety of one party impeding the other's operations,
and we urge that they continue to work together to assure
a workable arrangement. Indeed, we emphasize that, under
our criteria for imposing conditions to remedy
anticompetitive effects, a condition must be
operationally feasible. UP/MP/WP, 366 I.C.C. at 565.
Similarly, Soo does not appear to address
compensation to be paid by third parties which it will
admit onto the Clinton facility. As we do not believe
that this is an essential detail and the record is
insufficient to allow us to determine a specific amount,
we will not take a position on appropriate compensation
on the Clinton facility here.
Finance Docket No. 32133
We are not persuaded of the necessity of Soo's
proposed language stating that the primary applicants'
consummation of the common control of UP and CNW shall
constitute their irrevocable assent to the conditions
stated in this decision. The primary applicants state
that they object to the inclusion of such language, but
do not contest the proposition that they must adhere to
the Commission's conditions if they are to consummate the
transaction. They argue that they should not be
precluded from, at a later date, either (a) seeking the
commission's leave to pursue judicial review on discrete
issues related to the Soo condition while consummating
the control transaction and adhering to the condition, or
(b) seeking reopening on a ground set forth in 49 CFR
1115.4. (UP/CNW-133 at 7-8).
We agree with the primary applicants on this
issue. While it is true that the primary applicants'
consummation of the transaction indicates their consent
to abide by all conditions which the Commission imposed,
it is common for the Commission or a reviewing court to
revisit and modify conditions. Certain changes could
occur that would make a reexamination appropriate in this
instance. We decline to bind the primary applicants in
the manner which Soo suggests.
Soo's proposed supplemental agreements,
attached as Appendix A to this decision, fully and
adequately implement the condition requested by Soo and
imposed by the Commission. We will direct the parties to
execute the agreements at the time of or prior to
consummation of UP/CNW common control.
This action will not significantly affect
either the quality of the human environment or the
conservation of energy resources.
Finance Docket No. 32133
It is ordered:
1. CNW in directed to execute and deliver to
Soo amendments to the Polo and Clinton agreements in the
form set forth in Appendix A to this decision, before or
at the time of the consummation of the common control of
UP and CNW.
2. This decision is effective on the service
date.
By the Commission, Chairman Morgan, Vice
Chairman Owen, and Commissioners Simmons and McDonald.
Vernon A. Williams
Secretary
(SEAL)
Finance Docket No. 32133
APPENDIX A
FORM OF AMENDMENT TO CLINTON AGREEMENT
SUPPLEMENTAL AGREEMENT
This SUPPLEMENTAL AGREEMENT (the "Agreement")
dated as of ___________, 1995, by and between Chicago and
North Western Railway Company, a Delaware corporation
("CNW"), and Soo Line Railroad Company, a Minnesota
corporation ("SOO").
WHEREAS, CNW and SOO are parties to that
certain agreement dated as of August 1, 1982, by and
between Chicago and North Western Transportation Company
and Chicago, Milwaukee, St. Paul and Pacific Railroad
Company governing Soo's use of approximately 1400 feet of
CNW track in the vicinity of Clinton, Iowa (the "Clinton
Agreement"); and
WHEREAS, in a decision served on March 7, 1995,
in Finance Docket No. 32133, Union Pacific Corporation,
Union Pacific Railroad Company and Missouri Pacific
Railroad Company -- Control -- Chicago and North Western
Transportation Company and Chicago and North Western
Railway Company, the Interstate Commerce Commission
("ICC") ordered, as a condition upon its authorization of
the control transaction at issue in that proceeding, that
CNW and SOO modify certain provisions of the Clinton
Agreement: and
WHEREAS, CNW and S00 have agreed upon such
modifications to the Clinton Agreement;
NOW THEREFORE, CNW and SOO, in consideration of
the covenants and agreements herein contained and other
good and valuable consideration, and intending to be
legally bound, hereby agree as follows:
I. Modification of the Clinton Agreement
The parties hereby agree to delete the language
of Section 15.1 of the Clinton Agreement in its entirety,
and to substitute therefor the following language:
"This Agreement shall be binding upon and inure
to the benefit of the parties hereto, their
respective successors, lessees and assigns.
CNW and SOO each shall have the right to sell,
assign or transfer any interest or right given
it under this Agreement without the consent of
the other party. SOO and CNW each shall have
the right to admit other parties to the use of
the tracks and facilities governed by this
Agreement, and to handle traffic for the
account of other parties over the tracks and
facilities governed by this Agreement. The
cars, trains, equipment, lading and employees
Finance Docket No. 32133
of any party admitted by SOO to the use of the
tracks and facilities governed by this
Agreement, and any equipment or lading handled
by SOO for the account of another party over
the tracks and facilities governed by this
Agreement, shall, for purposes of this
Agreement, be deemed the sole cars, trains,
equipment, lading and employees of SOO. The
cars, trains, equipment, lading and employees
of any party admitted by CNW to the use of the
tracks and facilities governed by this
Agreement, and any equipment or lading handled
by CNW for the account of another party over
the tracks and facilities governed by this
Agreement, shall, for purposes of this
Agreement be deemed the sole cars, trains,
equipment, lading and employees of CNW. CNW or
SOO (as applicable) shall be jointly and
severally liable to SOO or CNW (as applicable)
for all obligations of a party admitted by CNW
or Soo (as applicable) under the terms of this
Agreement. CNW or SOO (as applicable) shall
collect all amounts due from a party admitted
by it, and remit to SOO or CNW, (as applicable)
any such amount due to it. However, CNW or SOO
(as applicable) shall be free to proceed
directly against the admitted Party for the
payment of such sums owed to it pursuant to
this Agreement."
II. Effective Date
This Supplemental Agreement shall be effective
as of the date upon which the control transaction
authorized by the ICC in Finance Docket No. 32133
referenced above is consummated, whether by the
conversion of the non-voting shares of Chicago and North
Western Transportation Company currently held by UP Rail,
Inc. to voting shares or by any other means.
Finance Docket No. 32133
IN WITNESS WHEREOF, the parties hereto have
caused this agreement to be duly executed as of the date
first above written.
CHICAGO AND NORTH WESTERN
RAILWAY COMPANY
By:______________________
SOO LINE RAILROAD COMPANY
By:______________________
Finance Docket No. 32133
FORM OF AMENDMENT TO POLO AGREEMENTS
SUPPLEMENTAL AGREEMENT
This SUPPLEMENTAL AGREEMENT (the "Agreement")
dated as of _________, 1995, by and between Chicago and
North Western Railway Company, a Delaware corporation
("CNW"), and Soo Line Railroad Company, a Minnesota
corporation ("SOO").
WHEREAS, CNW and SOO are parties to that
certain agreement dated as of August 1, 1931, by and
between Chicago, Milwaukee, St. Paul and Pacific Railroad
Company and the St. Paul and Kansas City Short Line
Railroad Company (the "1931 Agreement"), and that certain
supplemental agreement dated as of June 1, 1945 by and
between Henry A. Scandrett, Walter B. Cummings and George
T. Haight, Trustees of the property of Chicago,
Milwaukee, St. Paul and Pacific Railroad Company, and
Joseph B. Fleming and Aaron Colnon, Trustees of the
Estate of The Chicago, Rock Island and Pacific Railway
Company (the "1945 Agreement") (which agreements are
referred to collectively hereinafter as the "Polo Line
Agreements"); and
WHEREAS, in a decision served on March 7, 1995,
in Finance Docket No. 32133, Union Pacific Corporation,
Union Pacific Railroad Company and Missouri Pacific
Railroad Company -- Control -- Chicago and North Western
Transportation Company and Chicago and North Western
Railway Company, the Interstate Commerce Commission
("ICC") ordered, as a condition upon its authorization of
the control transaction at issue in that proceeding, that
CNW and SOO modify certain provisions of the Polo Line
Agreements; and
WHEREAS, CNW and SOO have agreed upon such
modifications to the Polo Line Agreements:
NOW THEREFORE, CNW and SOO, in consideration of
the covenants and agreements herein contained and other
good and valuable consideration, and intending to be
legally bound, hereby agree as follows:
I. Modification of the 1931 Agreement
The parties hereby agree to delete the language
of Article IX, Section 4 of the 1931 Agreement in its
entirety, and to substitute therefor the following
language:
"CNW and SOO each shall have the right to sell,
assign or transfer all or any part of its
interest in the tracks and facilities governed
by this Agreement without the consent of the
other party; provided, however, that the party
to which such tracks or facilities are sold,
Finance Docket No. 32133
assigned or transferred shall agree in writing,
without condition or reservation, to be bound
by, and to assume the obligations of CNW or SOO
(as applicable) with respect to such tracks or
facilities under, this Agreement. CNW and SOO
each shall have the right to admit other par-
ties to the use of all or any part of the
tracks and facilities governed by this
Agreement without the consent of the other
party. CNW and SOO each shall have the right
to handle traffic for the account of other
parties over the tracks and facilities governed
by this Agreement without the consent of the
other party. The cars, trains, equipment and
employees of any party admitted by CNW to the
use of the tracks and facilities governed by
this Agreement, and any cars, trains or
equipment handled by CNW for the account of
another party over the tracks and facilities
governed by this Agreement, shall, for purposes
of this Agreement, be deemed the cars, trains,
equipment and employees of CNW. The cars,
trains, equipment and employees of any party
admitted by SOO to the use of the tracks and
facilities governed by this Agreement, and any
cars, trains or equipment handled by SOO for
the account of another party over the tracks
and facilities governed by this Agreement,
shall, for purposes of this Agreement, be
deemed the cars, trains, equipment and
employees of SOO. For traffic of another party
that CNW or SOO admits to the tracks and
facilities governed by this Agreement via
trackage rights or haulage, the party whose
traffic is so admitted shall pay an interest
rental fee of $3.15 per car, escalated using
RCAF (unadjusted), any successor index, or, if
there is no successor index, an index mutually
agreed upon by CNW and SOO. For all cars
moving over the southernmost line of the joint
facility between Polo and Birmingham, MO, the
interest rental fee shall be payable to SOO.
For all cars moving over the northernmost line
of the joint facility between Polo and
Birmingham, MO, the interest rental fee shall
be payable to CNW. CNW or SOO (as applicable)
shall be jointly and severally liable to SOO or
CNW (as applicable) for all obligations of a
party admitted by CNW or SOO (as applicable)
under the terms of this Agreement. CNW or SOO
(as applicable) shall collect all amounts due
from a party admitted by it, and remit to SOO
or CNW (as applicable) any such amount due to
it. However, CNW or SOO (as applicable) shall
be free to proceed directly against the
admitted party for the payment of such sums
owed to it pursuant to this Agreement."
Finance Docket No. 32133
II. Modification of the 1945 Agreement
The parties hereby agree to delete the language
of Article 1, section 2 of the 1945 Agreement in its
entirety, and to substitute therefor the following
language:
"CNW and SOO each shall have the right to sell,
assign or transfer all or any part of its
interest in the tracks and facilities
constituting the Joint Lines without the
consent of the other party; provided, however,
that the party to which such tracks or
facilities are sold, assigned or transferred
shall agree in writing, without condition or
reservation, to be bound by, and to assume the
obligations of CNW or S00 (as applicable) with
respect to such tracks or facilities under,
this Agreement. CNW and SOO each snail have
the right to admit other parties to the use of
all or any part of the Joint Lines without the
consent of the other party. CNW and SOO each
shall have the right to handle traffic for the
account of other parties over the Joint Lines
without the consent of the other party. The
cars, trains, equipment and employees of any
party admitted by CNW to the use of the Joint
Lines, and any cars, trains or equipment
handled by CNW for the account of another party
over the Joint Lines, shall, for purposes of
this Agreement, be deemed the cars, trains and
employees of CNW. The cars, trains, equipment
and employees of any party admitted by SOO to
the use of the Joint Lines, and any cars,
trains or equipment handled by SOO for the
account of another party ever the Joint Lines,
shall, for purposes of this Agreement, be
deemed the cars, trains, equipment and
employees of SOO. CNW or SOO (as applicable)
shall be jointly and severally liable to SOO or
CNW (as applicable) for all obligations of a
party admitted by CNW or SOO (as applicable)
under the terms of this Agreement. CNW or SOO
(as applicable) shall collect all amounts due
from a party admitted by it, and remit to SOO
or CNW (as applicable) any such amount due to
it. However, CNW or Soo (as applicable) shall
be free to proceed directly against the
admitted party for the payment of such sums
owed to it pursuant to this Agreement."
III. Effective Date
This Supplemental Agreement shall be effective
as of the date upon which the control transaction
authorized by the ICC In Finance Docket NO. 32133
referenced above is consummated, whether by the
conversion of the non-voting shares of Chicago and North
Finance Docket No. 32133
Western Transportation Company currently held by UP Rail,
Inc. to voting shares or by any other means.
IN WITNESS WHEREOF, the parties hereto have
caused this agreement to be duly executed an of the date
first above written.
CHICAGO AND NORTH WESTERN
RAILWAY COMPANY
By:______________________
SOO LINE RAILROAD COMPANY
By:______________________
[Union Pacific Corporation Logo] News Release
_________________________________________________________________
_____________
Contact: 610-861-3388
Harvey S. Turner
Director-Public Relations
Martin Tower
Eighth and Eaton Avenues
Bethlehem, PA 18018
FOR IMMEDIATE RELEASE
BETHLEHEM, PA, APRIL 6, 1995 -- Union Pacific announced that the
ICC today had set the final terms of a previously-imposed
condition to Union Pacific's exercise of control over Chicago and
North Western's railroad subsidiaries. The condition requires
C&NW to allow Soo Line Railroad to admit third parties to some 40
miles of jointly-owned CNW/Soo railroad facilities north of
Kansas City. Upon execution of implementing agreements, Union
Pacific will have ICC authority to exercise control over C&NW,
including the purchase of additional stock of C&NW in Union
Pacific's current tender offer and proposed merger.
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