Please do not leave this page until complete. This can take a few moments.
The pending acquisition of Maine’s largest railroad has hit some snags and is running behind its original timetable. But a state official says the deal is still on track, and that a side agreement inked last week will protect Maine’s interests if the sale goes through.
The outcome, however, could end up hinging on paperwork the buyer plans to file with federal regulators today, Thursday.
CSX Corp. (Nasdaq: CSX), one of the world’s largest freight carriers, hopes to purchase North Billerica, Mass.-based Pan Am Railways Inc. in a deal announced Nov. 30 and speculated to be worth as much as $700 million. But first the transaction must have approval of the Surface Transportation Board.
In Maine, New England and elsewhere, backers and opponents of the sale have flooded the five-member panel with dozens of formal opinions on the matter. In a May letter, U.S. Sen. Susan Collins, R-Maine, encouraged the board to approve the deal, saying it would have "significant benefits" for the state such as track upgrades CSX plans to make.
Meanwhile, CSX has failed twice in getting the board to begin formal consideration of the company’s application for review.
In March, the board classified the sale as a "significant" transaction, requiring a more rigorous review than a "minor" one — the classification CSX had sought in its application.
The company's request had drawn sharp rebukes from officials in Massachusetts and Vermont, who said the acquisition would reduce competition among freight carriers and crimp passenger rail service in those states. The board said the "significant" classification would allow more time to look into the concerns.
CSX submitted an amended, 478-page application on April 26. A month later, the board ruled it was incomplete. The new application didn't contain a full, data-supported market analysis of the deal's effect on freight-carrying competition, the STB said.
Now CSX is expected to submit another application by July 1, according to a letter from the company. By Thursday morning, no application had appeared in the board's online public docket, and CSX did not immediately respond to questions from Mainebiz about the status of the application.
Nate Moulton, director of freight and passenger services for the Maine Department of Transportation, is optimistic about the deal.
“Everything leads me to believe CSX will file a more complete, amended application by Thursday, and hopefully that will clarify and answer some of the questions the STB has,” he told Mainebiz earlier this week.
“We are still supportive of the transaction. We are still confident it will happen, and we think it’s good for Maine.”
Moulton said the department has signed an agreement with CSX outlining duties Maine expects the carrier to fulfill if the sale is completed. They include performing roughly $75 million in previously funded rail line improvements, and to continue operating the current Pan Am routes in Maine for at least three years.
“We just wanted to put in writing that [CSX] recognizes our rights, and that they’ll work with us,” Moulton said. “This gives us a bit more leverage down the road.”
The Northern New England Passenger Rail Authority, which oversees the Amtrak Downeaster passenger train service between Maine and Boston, is working out a similar agreement with CSX.
“We’ve had a good dialogue with CSX, and we expect to iron out [an agreement] on the business relationship in short order,” NNEPRA Executive Director Patricia Quinn said Wednesday.
“We think this is a good deal for the state, for both passenger and freight service.”
There's a lot at stake in the Pan Am-CSX deal, so Maine's precautions may be understandable.
Pan Am owns 400 miles of train tracks across the state, or about a third of all the rail mileage in Maine, as well as the Downeaster's tracks and the 79 miles of them between South Berwick and Brunswick. In total, Pan Am owns or has operating rights to 1,700 miles of track in the Northeast and Canada, making the carrier the largest regional, Class II railroad.
CSX is one of North America's seven Class I railroads, and owns 20,000 miles of track serving every state east of the Mississippi River except Maine, New Hampshire and Vermont. The sale, if completed, will help fill that gap and broaden the railroad’s reach in Connecticut, New York and Massachusetts.
Pan Am and its parent company, Pan Am Systems Inc. of Portsmouth, N.H., went up for sale a year ago, prompting guesswork about who would buy.
After the November announcement that CSX and Pan Am had agreed to a deal, the public comments began flowing to the Surface Transportation Board.
In Vermont, where the complex agreement will put both of the state's Class II railroads under control of CSX, Attorney General Thomas Donovan called CSX "tone deaf to the anticompetitive consequences" of the deal.
In Massachusetts, state lawmakers have wondered if CSX will hinder long-sought improvements on commuter rail lines.
Amtrak, which owns some of the tracks in Massachusetts and Connecticut, also filed papers opposing the deal. If it's approved, Amtrak claimed, freight traffic on those tracks could increase 27% and crowd out passenger service.
"As currently proposed, the acquisition of Pan Am by CSX represents a significant threat to the American traveling public," CEO Bill Flynn said in a June 4 statement. "After reviewing the CSX application, it is clear that the proposed merger, in its current form, will adversely impact the performance of Amtrak trains and threaten future growth opportunities."
An advocate for passenger rail service in Maine also is concerned that the state is focusing too much attention on the Pan Am tracks, and not enough on other rail infrastructure.
The executive director of the Maine Rail Transit Coalition, Tony Donovan (no relation to the Vermont attorney general) told Mainebiz, "Our biggest concern is that the state of Maine policy has been to invest in the Pan Am freight mainline, while allowing the 300 plus-minus miles of state-owned railroad infrastructure to go dormant ... Why is the state not seeking to acquire key railways that link the state-owned infrastructure? The governor does not appear to recognize the value of our state-owned railroads."
For its part, CSX hasn't said much in response. But in an earlier statement to Mainebiz, the company pledged to "maintaining or improving existing service on Pan Am, which in turn will improve customer competitiveness through lower costs, better service and improved access to the North American rail network. CSX will also maintain or improve existing passenger service across Pan Am.”
At MDOT, Moulton believes the end result of the deal will be more streamlined, consistent service. Because of CSX's reach, Maine companies will be able to ship goods end-to-end via a single, Class I carrier, reducing costs and potential delays, he predicted.
"A lot of traffic already goes out through CSX. So now we'll have a one-railroad connection up and down the Eastern seaboard," he said. "If you're shipping from Maine, you can do that day after day and know that you [freight] doesn't have to sit in an interchange. A one-railroad move will be smoother, and should cut cost and transit time."
As for the concerns expressed by other states and other parties, Moulton is sanguine.
"I would never second-guess their concerns, but I think some of those things will be worked out. And some don't necessarily affect us in Maine," he said. "CSX continues to work with the other parties, and hopefully will get to a place where everybody’s reasonably happy."
Once the new application is received, it could take up to a year for the Surface Transportation Board to approve the transaction and for it to close, he estimates.
"Short of a Class I railroad buying another Class I, this is the next largest thing," he said. "It's a big deal."
Editor's Note: CSX filed an expanded, amended application with the Surface Transportation Board on July 1, after publication of this article.