The US Surface Transportation Board (STB) has given the green light for the $31bn takeover of Kansas City Southern (KCS) by Canadian Pacific (CP).

This clears the way for the first major merger on the US rail scene in two decades.

The takeover will create the first single-line rail carrier that spans the US, Canada and Mexico, with about 20,000 miles of track and close to 20,000 employes.

The combined operation will be named Canadian Pacific Kansas City (CPKC).

The STB came to the conclusion that the merger would be a catalyst for growth in rail traffic and competition among carriers.

In a 212-page ruling, it said: “The board expects this new single-line service will foster the growth of rail traffic, shifting approximately 64,000 truckloads annually from North America’s roads to rail, and will support investment in infrastructure, service, quality, and safety.”

Direct services made possible through the merger will facilitate the flow of grain from the Midwest to the Gulf Coast and Mexico, intermodal shipments between Dallas and Chicago and automotive parts, finished vehicles and other goods between the US and Mexico, added the STB.

It dismissed warnings from other carriers that the merger would have a negative impact on competition, pointing out that the merged entity would still be the smallest Class I railway in North America.

STB chairman Marty Oberman said: “Putting these two smaller railroads together will actually provide a stronger competitive landscape in the rail industry, vis-a-vis these much larger railroads, because separately they do not have the same power to provide a competitive service, as we have found they will together.”

The authority added that the merger would eliminate the need for interchange between CP and KCS, reducing travel time and allowing the combined operation to compete better through improved service at lower cost.

The STB has received more than 450 letters of support for the merger from shippers.

However, CPKC does not have carte blanche from the STB, it imposed a number of conditions on the merger: the carrier must keep connection points with other railways open and preserve options for shippers to route traffic via other railways; and has to justify rate increases over a certain level on interline movements if customers request this.

The STB will establish a seven-year oversight period, in addition to data reporting requirements, it announced.

The ruling was widely expected, although there were some doubts after the US Department of Justice advised against the merger, arguing it could result in a loss of business for US ports, as CPKC could favour Canadian maritime gateways.

The STB ruling allows CP to take control of KCS as early as 14 April, but the pair have indicated that they are not going to rush into marriage. CP said it would announce the merger plans in the coming days, after a detailed review of the STB ruling. Both sides said earlier they expect integration to take three years.

CP president and CEO Keith Creel said: “This decision clearly recognises the many benefits of this historic combination. As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network and drive economic growth.”

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