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On February 25, CSX Corp. applied to the Surface Transportation Board (STB) for approval of its acquisition of Pan Am Systems, Inc., which could impact competition, rates and service levels for rail traffic moving in New England. If the STB accepts the application, which it must decide by March 27, interested parties will have 30 days to comment on the whether the STB should approve the transaction and impose conditions to preserve competition.

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On November 30, 2020, CSX entered into an agreement to acquire Pan Am, a holding company that owns or has an interest in multiple railroads that form an 808 route-mile rail network in New England. Together, these rail interests compose North America’s largest regional railroad and hauled over 50,000 carloads in 2019. The largest commodity groups that Pan Am serves are paper products; sand, gravel and similar bulk commodities; and clay and concrete products.

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CSXT, which is CSX’s wholly owned subsidiary and a Class I railroad that provides service throughout the eastern United States, will control Pan Am’s rail carrier subsidiaries. In addition, nearly all of Pan Am’s subsidiaries will be merged into CSXT.

In connection with the acquisition, CSXT entered into agreements with other railroads, which it claims will not only eliminate the transaction’s anticompetitive impacts, but also make the transaction pro-competitive. Those agreements involve Pan Am Southern, a 50/50 joint venture between a Pan Am subsidiary and Norfolk Southern that operates a line parallel to the CSXT mainline in Massachusetts. Under the agreements, the Berkshire &amp; Eastern Railroad, a subsidiary of Genessee &amp; Wyoming Inc. (GWI), will operate Pan Am Southern, effectively removing it from CSXT’s direct control. This will reduce the number of carriers serving shippers on the Vermont Railway (VTR) to one, since GWI owns the only other carrier serving the VTR, but the agreements provide for rate and other commitments for VTR traffic. The agreements also provide Norfolk Southern with access rights involving intermodal and automotive facilities at Ayer, Massachusetts, currently served by Pan Am Southern.

CSX also claims that the transaction will not adversely affect competition, stating that:

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CSX also claims that CSXT will commit to keeping open existing gateways on commercially reasonable terms but does not clearly explain what it considers “commercially reasonable.” It also states that it will ensure access to rate regulation remedies if shippers are not satisfied with rates for connections to other railroads. The scope of this commitment is also unclear.

Because the transaction does not involve the control or merger of two Class I railroads and CSX claims the transaction will have no anticompetitive effects, or none that are not outweighed by the transaction’s anticipated contribution to the public interest in meeting significant transportation needs, CSX has classified the transaction as “minor” under STB rules.

By law, the acquisition of control of a rail carrier by another rail carrier or by a person that controls a rail carrier requires STB approval.

For transactions that do not involve two or more Class I carriers or that do not qualify for an exemption from approval, the STB must approve the transaction unless it finds that the transaction will likely cause the substantial lessening of competition, creation of a monopoly or restraint of trade in freight surface transportation in any region of the United States, and that the transaction’s anticompetitive effects outweigh the public interest in meeting significant transportation needs.

In reviewing a transaction, the STB primarily focuses on whether there would be adverse competitive impacts that are both likely and substantial. If it finds such impacts, it will consider whether they would outweigh the transportation benefits or could be mitigated through conditions.

The STB has broad authority to impose conditions to address competitive harm that might result from a transaction. In the past, it has imposed conditions including reciprocal switching (i.e., a requirement that the serving carrier switch traffic to a competitor for a fee), trackage rights (i.e., rights allowing competing carriers to access a shipper over the serving carrier’s line) and haulage agreements (i.e., agreements under which a carrier will haul another carrier’s traffic).

For this transaction, the STB will follow its approval process for minor transactions unless it disagrees with CSX’s classification of the transaction as minor. A “minor” transaction is one that does not involve the merger of multiple Class I railroads and that clearly would not have any anticompetitive effects or would have anticompetitive effects that would clearly be outweighed by the anticipated contribution to the public interest in meeting significant transportation needs. All other transactions that do not involve multiple Class I railroads and are not subject to an exemption are “significant.”

For a minor transaction, the STB must accept or reject the application within 30 days after filing (the deadline in this case is March 27). If the STB accepts the application, it must publish an accompanying notice of acceptance in the Federal Register and interested parties will have 30 days from the notice to file written comments on the application. The STB may also hold a hearing or engage in an evidentiary proceeding that must end within 105 days after it publishes the notice of acceptance. By statute, it must issue a final decision approving or denying the transaction within 45 days after the close of the evidentiary proceeding.

The STB has not yet issued a notice of acceptance or provided a procedural schedule for the CSX application. The deadline for issuing these items is also March 27.

Interested Parties Should Prepare Comments

Because the STB’s potential acceptance of CSX’s application is imminent, parties who will be impacted by the transaction, such as shippers that ship by rail to receivers located on a Pan Am System railroad, the Pan Am Southern or the VTR; and companies located on the Pan Am System, the Pan Am Southern or the VTR, should start preparing comments.

Comments should address whether the transaction will impact rail competition and, thus, the rates, routes or service levels for rail traffic. Interested parties who believe the transaction will have anticompetitive effects should also propose conditions the STB should place on the transaction to ameliorate those effects, like reciprocal switching.

Interested parties may comment whether they support or oppose the transaction. This ensures a fuller record for the STB and provides it with a better understanding of the transaction’s possible effect on competition.

Karyn A. Booth 202.263.4108 <a href="mailto:Karyn.Booth@ThompsonHine.com">Karyn.Booth@ThompsonHine.com</a>

Sandra L. Brown 202.263.4101 <a href="mailto:Sandra.Brown@ThompsonHine.com">Sandra.Brown@ThompsonHine.com</a>

Jeff Moreno 202.263.4107 <a href="mailto:Jeff.Moreno@ThompsonHine.com">Jeff.Moreno@ThompsonHine.com</a>

David E. Benz 202.263.4116 <a href="mailto:David.Benz@ThompsonHine.com">David.Benz@ThompsonHine.com</a>

Jason D. Tutrone 202.263.4143 <a href="mailto:Jason.Tutrone@ThompsonHine.com">Jason.Tutrone@ThompsonHine.com</a>

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions.

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CSX Applies for STB Approval to Acquire Pan Am Systems