STB grants exemption for G&W acquisition

Published: November 1, 2019

Disregarding comments by the SMART TD New York Legislative Board to the contrary, the Surface Transportation Board (STB) has granted an exemption to Brookfield Asset Management and DJP XX LLC that clears the way for their acquisition of short-line/regional railroad operator Genesee & Wyoming.

Genesee & Wyoming controls Class II and III railroads in 41 states and, if considered collectively, its holdings qualify it as a Class I carrier with more than 13,000 track miles.

The notice, published in the Federal Register Nov. 1 after a 3-0 vote by the board, concludes a postponement of the $8.4 billion acquisition put forth by the STB in late July. The acquisition, when completed, will make G&W a privately held company.

Brookfield Asset Management owns and operates assets in the utilities, transport, energy and data infrastructure across North and South America, Asia Pacific and Europe while DJP XX LLC is a subsidiary of GIC, a global investment firm that manages Singapore’s foreign reserves.

In early September, an attorney representing New York State Legislative Director Samuel J. Nasca filed reply comments asserting that the notice of exemption should be rejected or revoked because of the magnitude and nature of the transportation involved.

Nasca’s filing expressed concern regarding the role of foreign interests, including GIC, which would own 27% of equity in DJP XX and has links to the government of Singapore, and was not listed on the exemption application to the STB. He also identified Brookfield as controlling rail investments in Brazil — more than 10,000 km of rail tracks and stated that GWI controls rail carriers that are located in other countries including Canada, Australia and the United Kingdom and are not subject to Board jurisdiction.

Moreover, Nasca argued, employees could face negative ramifications if the deal went through.

“A number of the GWI carriers operate in or through New York State, and are represented by SMART/TD in collective (bargaining). Those GWI carriers not so represented by SMART/TD are nevertheless important for SMART/TD employees as such carriers interchange traffic with other GWI-represented carriers, or with other carriers outside the GWI family,” his filing stated. “Accordingly, SMART/TD employees stand to be adversely affected by Brookfield management decisions revising the structure of GWI or taking actions which may divert business to other units of the Brookfield organization.”

The board disregarded the concerns expressed for workers, about foreign interests and about the scale of the acquisition as well.

“SMART/TD-NY’s comments about the magnitude and nature of the transportation at issue do not support rejection of the notice or revocation of the exemption,” the board stated in the Federal Register notice.

STB member Marty Oberman, while voting to approve the exemption, did express some reservation about the magnitude of the exemption, stating in the Federal Register filing:

“This is by far the largest and most geographically diverse collection of railroads impacting the U.S. freight network ever to be processed as a class exemption under the Board’s existing regulations,” Oberman wrote. “In my opinion, this proceeding raises significant questions regarding whether transactions of this magnitude were contemplated when the class exemption regulations were adopted, and therefore raises questions as to whether it is appropriate for such major transactions to be eligible under those regulations in the first place.”

The proposed acquisition of G&W is expected to close by the end of 2019 or early 2020 pending review by the Committee on Foreign Investment in the United States (CFIUS).

Read Sam Nasca’s filing that opposes the exemption.

Read the entire Federal Register notice here.