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AND SOUTHERN RAILWAY COMPANY INTO THE BURLINGTON NORTHERN RAIL
BEFORE THIS MERGER, BURLINGTON NORTHERN OWNED
A VAST MAJORITY OF THE OUTSTANDING STOCK IN COLORADO AND SOUTHERN
AND THEREBY CONTROLLED IT.
IN OCTOBER 1981, BURLINGTON NORTHERN RAILROAD NOTIFIED ICC OF THE PROPOSED MERGER WITH THE COLORADO SOUTHERN RAILWAY. THE BURLINGTON NORTHERN CITED SEVERAL REASONS FOR THE MERGER INCLUDING THE SIMPLIFICATION OF CORPORATE OPERATIONS AND CONSOLIDATION OF OUTSTANDING DEBT. ON DECEMBER 28, 1981, ICC DECIDED THE MERGER WAS EXEMPT FROM ITS JURISDICTION BECAUSE THE TRANSACTION FITS WITHIN ICC'S EXEMPTION FOR TRANSACTIONS WITHIN A CORPORATE FAMILY THAT DO NOT ADVERSELY AFFECT SERVICE, OR RESULT IN SIGNIFICANT OPERATIONAL OR COMPETITIVE BALANCE CHANGES.
WE BELIEVE THE
EXEMPTION IN THIS CASE IS CONSISTENT WITH THE RATIONALE
UNDERLYING THE SINGLE SYSTEM DOCTRINE.
ICC'S MONITORING OF RAILROAD HOLDING
ICC, IN A 1977 REPORT TO THE CONGRESS, STATED THAT THE
ICC'S MONITORING ACTIVITIES APPEAR LIMITED. ICC MONITORS HOLDING COMPANY RAILROAD-RELATED TRANSACTIONS THROUGH AUDITS OF RAILROAD RECORDS AND REVIEWS OF ACCOUNTING AND SECURITY REPORTS. HOWEVER, THE AUDITS OF RAILROAD RECORDS ARE ONLY CONDUCTED EVERY 2 TO 3 YEARS. IN ADDITION, THE ACCOUNTING AND SECURITIES REPORTS REVIEWED BY ICC DO NOT PROVIDE SUFFICIENT INFORMATION TO IDENTIFY
MANY OF THE HOLDING COMPANIES' RAILROAD-RELATED TRANSACTIONS, SUCH AS WHETHER A HOLDING COMPANY ACQUIRING A LOAN USES ITS RAILROAD'S ASSETS AS SECURITY. ALTHOUGH ICC ALSO HAS ACCESS TO THE REPORT THAT HOLDING COMPANIES SUBMIT TO THE SECURITIES AND EXCHANGE COMMISSION, THE REPORT DOES NOT IDENTIFY A RAILROAD'S INVOLVEMENT IN SECURITY ISSUANCES. 1/
ICC OFFICIALS TOLD US THAT THEY DO NOT MONITOR ALL HOLDING COMPANIES' RAIL-RELATED OPERATIONS BECAUSE OF STAFF LIMITATIONS,
THE REDIRECTION OF ICC POLICY TOWARD LESS REGULATION,
A REDUCTION IN RAILROAD REPORTING REQUIREMENTS, AND THE FACT THAT NO ABUSES ADVERSELY AFFECTING A RAILROAD'S FINANCIAL STABILITY HAVE BEEN IDENTIFIED UNDER THE CURRENT MONITORING SYSTEM.
ALSO SAID THAT EVEN IF AN ABUSE WAS IDENTIFIED THEY DO NOT BELIEVE
ICC HAS THE AUTHORITY TO TERMINATE OR RESTRICT THE TRANSACTION
BECAUSE THE SINGLE CARRIER HOLDING COMPANIES ARE EXEMPT FROM ICC'S JURISDICTION UNDER EXISTING LEGISLATION.
WE BELIEVE ICC NEEDS TO MONITOR ALL HOLDING COMPANIES'
RAIL-RELATED OPERATIONS BECAUSE THE OPPORTUNITY FOR ABUSE DOES
EXIST. ICC'S CURRENT MONITORING EFFORTS PROVIDE LIMITED ASSURANCE
STAFF REDUCTIONS AND THEIR IMPACT
ICC'S OVERALL STAFF HAS DECREASED BY ABOUT 512 OR ABOUT 25
ANALYSES AND FOR CONDUCTING POSTMERGER ANALYSES--STAFF YEAR CEILING
1/THE SECURITIES AND EXCHANGE COMMISSION REVIEWS THE REPORT TO ASSURE THE HOLDING COMPANIES' FINANCIAL STATUS IS ACCURATELY PORTRAYED.
--A NUMBER OF ICC'S OFFICES ASSIST IN ANALYZING VARIOUS ASPECTS
LENGTH OF TIME THEY ARE REQUIRED, VARIES FROM MERGER TO MERGER. RATHER THAN COMPROMISE THE QUALITY OF ITS WORK, THE DIRECTOR SAID THAT ICC WOULD CONTRACT FOR SPECIFIC STUDIES IF ICC BECOMES
UN EXPECTEDLY FLOODED WITH MERGER PROPOSALS.
ICC NOW BELIEVES THE USEFULNESS OF
DURING JUNE 1979 SENATE HEARINGS BEFORE THE SUBCOMMITTEE
ON ANTITRUST, MONOPOLY, AND BUSINESS RIGHTS, SENATE COMMITTEE ON THE JUDICIARY, FORMER ICC CHAIRMAN O'NEAL TESTIFIED THAT ICC WAS RESPONSIBLE FOR ANALYZING POSTMERGER DATA AND THAT ICC WAS IN THE PROCESS OF CONTRACTING FOR SUCH A STUDY WITH PRINCETON UNIVERSITY.
IN RESPONSE TO SENATOR BAUCUS' REQUEST, WE INQUIRED IN
NOVEMBER 1981 WHETHER THE STUDY REFERRED TO BY THE CHAIRMAN
HAD BEEN DONE. ICC INFORMED US THE STUDY HAD NOT BEEN PERFORMED AND WE RELAYED THIS INFORMATION TO THE SENATOR BY LETTER DATED DECEMBER 2, 1981. SUBSEQUENTLY ICC SAID THAT IN SPITE OF ITS EARLIER STATEMENTS TO US, IT HAD FOUND THE STUDY, WHICH IT THEN MADE AVAILABLE. ICC OFFICIALS SAID THEY COULD NOT FIND THE STUDY
WHEN WE INITIALLY ASKED BECAUSE THE STUDY PROPOSED BY FORMER CHAIRMAN O'NEAL WAS TO BE BROAD-BASED AND THE STUDY ACTUALLY DONE WAS SUBSTANTIALLY LIMITED IN SCOPE. IN ADDITION, THE STAFF INVOLVED WITH THE STUDY WAS NO LONGER WITH ICC. HOWEVER, AFTER CONFERRING WITH THE FORMER ICC DIRECTOR RESPONSIBLE FOR THE STUDY, ICC OFFICIALS DETERMINED THAT THE NARROWLY SCOPED STUDY WAS THE ONE
MENTIONED BY THE FORMER CHAIRMAN.
THE STUDY WAS ISSUED IN THE SPRING OF 1980. HOWEVER, IT DID NOT ACCOMPLISH ICC'S ORIGINAL GOALS OF DETERMINING WHETHER THE BENEFITS OF THE MERGERS REVIEWED WERE REALIZED NOR DID IT PROVIDE INFORMATION THAT COULD BE PROJECTED TO OTHER MERGERS. ACCORDING TO THE OFFICIAL RESPONSIBLE FOR THE STUDY, THE SCOPE WAS REDUCED BECAUSE OF DATA LIMITATIONS. THE STUDY DEVELOPED ONLY EXPECTED RANGES OF TRAFFIC DIVERSION FROM ONE RAILROAD TO THE MERGED RAILROADS. ICC TOLD US IT DID NOT CONVEY THE STUDY'S RESULTS TO THE SUBCOMMITTEE BECAUSE THE FINDINGS WERE LIMITED AND INCONCLUSIVE. ICC OFFICIALS ACKNOWLEDGED THAT PROPERLY CONDUCTED POST
MERGER STUDIES MAY PROVIDE USEFUL INFORMATION FOR DEVELOPING ITS MERGER POLICIES, BUT QUESTION (1) WHETHER MERGERS ARE SUFFICIENTLY SIMILAR TO USE THE RESULTS OF ONE MERGER TO ASSESS THE POTENTIAL IMPACT OF A PROPOSED MERGER, AND (2) IF DATA ANALYSIS CAN PRODUCE CONCLUSIVE FINDINGS.
ATTORNEYS IN ICC'S OFFICE OF PROCEEDINGS STATED THAT POSTMERGER STUDIES COULD BE SUBMITTED AS EVIDENCE DURING CURRENT MERGER PROCEEDINGS. SINCE EACH MERGER IS DIFFERENT, HOWEVER, EVIDENCE FROM POSTMERGER STUDIES COULD EASILY BE CHALLENGED ON THE GROUNDS THAT THE MERGERS WERE NOT SUFFICIENTLY SIMILAR FOR THUS, THE FACT THAT OTHER MERGERS DID NOT ACHIEVE THEIR ANTICIPATED BENEFITS WOULD NOT PROVIDE ASSURANCE THAT THE MERGER BEING PROPOSED WOULD NOT ACHIEVE ITS ANTICIPATED BENEFITS.
THESE STUDIES COULD ASSIST ICC'S REVIEWS OF PROPOSED MERGERS, EITHER BY DEVELOPING METHODS FOR DATA ANALYSIS, OR BY HIGHLIGHTING POLICY ISSUES. HOWEVER, DOING STUDIES MUST BE WEIGHED AGAINST THEIR COST AND THE POSSIBILITY THAT POSTMERGER STUDIES
MAY NOT PRODUCE USEABLE RESULTS.
MR. CHAIRMAN, THIS CONCLUDES MY PREPARED STATEMENT. PREPARED TO ANSWER ANY QUESTIONS YOU MAY HAVE AT THIS TIME.
Mr. TAYLOR. Mr. Chairman, let me start out by saying that I have with me this morning Mr. Louis Gitomer, who is our Acting Deputy Director of the Section of Finance, Office of Proceedings, on my left. On my right is Janice Rosenak, who is the Commission's Legislative Counsel. Sitting behind me are Mr. William F. Moss, who is Deputy Director of the Commission's Bureau of Accounts, in the_event_there are some questions in his area; also, J. Warren McFarland, who is our Director of the Office of Compliance and Consumer Assistance; together with William R. Southard, who is the Director of the Commission's Office of Transportation Analysis. We appreciate this opportunity to testify before you today to share with you the Interstate Commerce Commission's policies regarding railroad mergers and to discuss our activities in this area. Let me begin by saying that the Commission shares your concerns regarding the effects of rail restructuring on the financial viability of our Nation's rail system and the maintenance of essential rail services to the shipping public.
Today I will be discussing the Commission's policies and procedures in the rail merger area, the status of pending merger applications, and the Commission's views regarding the holding company corporate structure which has now been adopted by most of the Nation's railroads.
I would like to begin my testimony by discussing the Commission's policy and procedures related to major mergers, those involving at least two class I railroads.
The Commission's consideration of any major merger application is governed by the criteria prescribed in our enabling statute as well as the rail transportation policy.
In order to determine whether a transaction is in the public interest, the Commission performs a balancing test; that is, weighing the potential benefits of the proposed consolidation against any potential harm which might result therefrom. Benefits which can result from rail consolidation include the creation of a more financially sound competitor, a reduction in redundant facilities or increased marketing opportunities.
There are two potential results from consolidations which would harm the public and which the Commission must carefully consider in any merger case. They are reduction of competition and harm to essential services, the latter consideration being particularly important.