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CP Rail accuses rivals of colluding to fight merger with Norfolk Southern

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MONTREAL Canadian Pacific Railway has asked the U.S. Department of Justice to get involved in its battle to acquire Norfolk Southern.

The Calgary-based railway wants U.S. antitrust authorities to conduct a review of what it alleges is an illegal co-ordinated effort by major U.S. railroads to block industry consolidation, including its proposed takeover of the Virginia rail company.

It cited news reports in which those railways said they were concerned about the damage the merger which would create the largest railway in North America — would have on their profitability and shareholder value.

“We are deeply concerned that these actions are being taken for the primary purpose of restraining trade ... and not for any legitimate purpose that would benefit the public or enhance competition in the U.S. railroad industry,” said the letter signed by lawyers for Canadian Pacific.

Canadian Pacific (TSX:CP) has been repeatedly rebuffed by Norfolk Southern since making a cash and stock offer worth US$28 billion in November, which it later sweetened to between US$37 billion and US$42 billion.

The railway says the merger would enhance competition and improve rail efficiencies for customers.

However, it alleges that several large U.S. railways have responded by working together though “a widespread campaign of meetings and solicitations with customers, the media and other interested parties.”

Approval from the U.S. Surface Transportation Board is required for any merger. The agency has yet to receive a formal proposal but has posted on its website more than 30 letters from politicians and customers opposing the deal.

Matt Rose, chairman of BNSF Railway headquartered in Fort Worth, Texas, has been quoted in a Reuters article as saying the merger would make it hard for Florida railway company CSX to survive.

CSX said it opposes the merger while Union Pacific CEO Lance Fritz said his company was working behind the scenes to ensure no mergers take place.

While Canadian Pacific said its competitors have good reason to be concerned about a merger, “fear of competition does not justify the collective action of competitors.”

Canadian Pacific said it believes the strategy by the U.S. railway companies is likely illegal because it is anti-competitive and akin to a group boycott.

CSX declined to comment but Union Pacific and BNSF defended their actions.

“We have communicated with other railroads for the purpose of petitioning the government,” Union Pacific spokesman Aaron Hunt said in an email. “We oppose this merger and we are prepared to discuss our views with the government.”

BNSF spokesman Michael Trevino said all of the company’s actions and comments have come after consulting with counsel and have been done according to the law.

The U.S. Justice Department declined to comment on the Canadian Pacific letter and wouldn’t say if it will launch a review.

Follow @RossMarowits on Twitter.

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