[Federal Register Volume 84, Number 212 (Friday, November 1, 2019)]
[Notices]
[Pages 58798-58801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23956]
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SURFACE TRANSPORTATION BOARD
[Docket No. FD 36326]
Brookfield Asset Management, Inc. and DJP XX, LLC--Control
Exemption--Genesee & Wyoming Inc., et al.
Brookfield Asset Management, Inc. (Brookfield), and DJP XX, LLC
(DJP)
[[Page 58799]]
(collectively, Applicants),\1\ filed a verified notice of exemption
under 49 CFR 1180.2(d)(2) to allow Applicants to control Genesee &
Wyoming Inc. (GWI) and the 106 rail carriers controlled by GWI that are
subject to the jurisdiction of the Board (GWI Railroads).\2\ As
discussed further below, the Board will allow the exemption to become
effective. However, Applicants will remain subject to the Board's July
22, 2019 direction to provide periodic updates regarding the status and
outcome of the review being conducted by the Committee on Foreign
Investment in the United States (CFIUS).
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\1\ Brookfield controls DJP within the meaning of 49 U.S.C.
10102(3).
\2\ Two of the GWI Railroads are Class II carriers, and the
remainder are Class III carriers. (Verified Notice, Ex. 1.)
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Background
On July 9, 2019, Applicants filed a verified notice of exemption
under 49 CFR 1180.2(d)(2) to control GWI, a publicly traded noncarrier
holding company that controls, through direct or indirect equity
ownership, the GWI Railroads. (Verified Notice 2.) As a result of the
proposed transaction, GWI would become a privately held company and a
wholly owned subsidiary of DJP. (Id.) According to the verified notice,
DJP would indirectly control the GWI Railroads through DJP's direct
control of GWI, and Brookfield would indirectly control the GWI
Railroads through Brookfield's control of DJP and DJP's control of GWI.
(Id.) Applicants state that Brookfield and DJP are not rail carriers
and do not own or control any rail carriers in the United States. (Id.)
Applicants further state that they each require Board authority
pursuant to 49 U.S.C. 11323(a)(4) to consummate the transaction. (Id.)
Applicants represent that, pursuant to 49 CFR 1180.2(d)(2): (i) The
GWI Railroads do not connect with any rail line owned or controlled by
DJP or Brookfield; (ii) the proposed transaction is not part of a
series of anticipated transactions that would connect any railroad
owned or controlled by DJP or Brookfield with any GWI Railroad, or that
would connect any of the GWI Railroads with each other; and (iii) the
proposed transaction does not involve a Class I carrier. (Id. at 2-3.)
Applicants acknowledge that, under 49 U.S.C. 10502(g), the Board may
not use its exemption authority to relieve a rail carrier of its
statutory obligation to protect the interests of its employees. (Id. at
5.) Applicants further acknowledge that because the transaction
involves the control of two Class II carriers and more than one Class
III carrier, the transaction is subject to the labor protection
requirements of 49 U.S.C. 11326(a) and New York Dock Railway--Control--
Brooklyn Eastern District Terminal, 360 I.C.C. 60 (1979). (Verified
Notice 5.)
By decision served on July 22, 2019, and published in the Federal
Register on July 26, 2019 (84 FR 36157), the effectiveness of the
exemption was postponed until further order of the Board to allow
sufficient time to consider the issues presented. The decision also
directed Brookfield and DJP to provide updates regarding CFIUS review
and the outcome of such review, and it invited comments from the
Applicants and the public.
In response to its July decision, the Board received numerous
comments, including opening and reply comments from the Applicants.
Most of the comments relate to the Providence and Worcester Railroad
Company (P&W), a Class III railroad controlled by GWI \3\ that operates
passenger and excursion services between Rhode Island and
Massachusetts.\4\ The main interests of the P&W Commenters are the
continuation of excursion service, completion of a multi-use path, and
the need for strong communication and collaboration with Applicants as
the prospective new owners of P&W. Some of the P&W Commenters request
that the Board condition authorization of the transaction on the
Applicants working cooperatively to accommodate completion of the
multi-use path. (See BHC Comments 3; City of Woonsocket Comments 1-2;
National Park Service Comments 1; Honorable Michael O. Moore Comments
1; Town of Grafton Comments 1; Town of Uxbridge Comments 1.)
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\3\ Genesee & Wyoming Inc.--Acquis. of Control Exemption--
Providence & Worcester R.R., FD 36064 (STB served December 16,
2016).
\4\ The following commenters focused on issues pertaining to
P&W: Blackstone Valley Tourism Council; the Honorable Donald R.
Grebien, Mayor of Pawtucket, R.I.; Northern Rhode Island Chamber of
Commerce; Blackstone River Valley National Heritage Corridor, Inc.
(BHC); Town of North Smithfield, R.I.; City of Woonsocket, R.I.;
U.S. Department of the Interior, National Park Service (National
Park Service); the Honorable Michael O. Moore, Massachusetts State
Senator; the Honorable James A. Diossa, Mayor of City of Central
Falls, R.I.; Town of Grafton, Mass.; and Town of Uxbridge, Mass.
(collectively, P&W Commenters).
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A comment in opposition to the proposed transaction was received on
August 20, 2019, from Victoria Dalrymple, who states that she is a
shareholder of GWI. (Dalrymple Comments 1.) Dalrymple argues that the
exemption at 49 CFR 1180.2(d)(2) is not applicable to the proposed
transaction because Brookfield's management of railroads in other
countries, its pyramid-controlled corporate structure, and evidence of
its past decapitalization of rail assets suggest the possibility of
anticompetitive outcomes. (Id. at 1-4, 6-7.) Dalrymple also raises
concerns over the possibility of foreign entities--a ``Singapore
sovereign wealth fund'' \5\ and Qatar, both of which have relationships
with Brookfield--controlling key domestic infrastructure assets. (Id.
at 6.)
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\5\ Dalrymple appears to be referring to GIC Pte. Ltd. (GIC).
According to Applicants, GIC is a global investment firm that
manages Singapore's foreign reserves and, at closing of the proposed
transaction, GIC would have an approximately 27% equity interest in
DJP and the same percentage vote on the DJP board of directors. (See
Applicants Response 2 n.3; 2 n.4 & Verification, Sept. 9, 2019.)
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The Transportation Division of the International Association of
Sheet Metal, Air, Rail and Transportation Workers (SMART/TD) filed a
notice of intent to participate, and on September 5, 2019, Samuel J.
Nasca, for and on behalf of SMART/TD, New York State Legislative Board
(SMART/TD-NY), filed reply comments asserting that the notice of
exemption should be rejected or the exemption revoked because of, among
other things, the magnitude and nature of the transportation involved.
(SMART/TD-NY Reply 3-4.) SMART/TD-NY expresses concern regarding the
role of GIC, which it argues is required to be an applicant in addition
to Brookfield and DJP, (id. at 4-5); asserts that Brookfield controls
rail investments in Brazil, a country that produces soybeans that
compete globally with U.S. soybeans, (id. at 5); and states that GWI
controls rail carriers that are located in other countries and are not
subject to Board jurisdiction, (id. at 8). SMART/TD-NY further comments
that SMART/TD employees may be adversely affected by Applicants'
prospective management of GWI. (Id. at 6)
On September 5, 2019, Applicants filed reply comments. Applicants
respond to the P&W Comments and state that they intend to continue to
work with GWI, P&W, and the communities and reiterate that they do not
plan to change the operations of GWI or the GWI Railroads after
consummation of the proposed transaction. (Applicants Reply 3, Sept. 5,
2019.) They further respond that the imposition of conditions on the
transaction unrelated to competition would be inappropriate in this
case. (Id. at 4.) Applicants assert that Dalrymple's comments are
inaccurate and argue, among other things, that the proposed transaction
will not have anticompetitive impacts because there
[[Page 58800]]
will be no change in relationships with carriers outside the GWI
corporate family, or in patterns or types of service by the GWI
Railroads. (Id. at 5-6.) Applicants argue that Dalrymple
mischaracterized Brookfield's ownership of an Australian railroad
company and that those claims have no relevance to the applicability of
the class exemption process. (Id. at 7.) Applicants also respond that
no investor in Brookfield's private institutional funds has the ability
to exercise control over those funds, no foreign government has any
influence over any Brookfield-controlled funds, and such concerns are
outside the Board's purview in any event. (Id. at 7-8.)
Applicants also filed a response to SMART/TD-NY's September 5 reply
comments on September 9, 2019, asserting that its claims are without
merit.\6\ (Applicants Response 2, Sept. 9, 2019.) Applicants argue that
GIC need not obtain the Board's control authority because the proposed
transaction will not result in GIC controlling any of the Applicants or
GWI Railroads and that GWI's control of carriers in other countries is
not relevant to whether Applicants qualify for the Sec. 1180.2(d)(2)
exemption. (Id.) They also generally assert that no valid competitive
concerns have been raised that would warrant rejection of the notice or
revocation of the exemption. (Id.)
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\6\ Under 49 CFR 1104.13(c), a reply to a reply is not
permitted. However, in the interest of a more complete record, the
Board will accept into the record Applicants' September 9 response,
as well as a September 10, 2019 petition for leave to reply and
reply to Applicants' response filed by SMART/TD-NY, and an October
2, 2019 petition for leave to reply and reply to Applicants'
September 5, 2019 response filed by Dalrymple, regarding
Brookfield's corporate structure.
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On September 24, 2019, Applicants filed an update regarding the
status of the CFIUS review and a motion for protective order.\7\ On
September 26, 2019, Applicants filed a further update regarding the
status of the CFIUS review.
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\7\ By decision served September 27, 2019, Applicants' motion
for protective order was granted.
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Discussion and Conclusions
Under 49 U.S.C. 11323(a)(4), the Board's approval and authorization
is required for a transaction involving the acquisition of control of
at least two rail carriers by a noncarrier. The class exemption set
forth at 49 CFR 1180.2(d)(2) provides an expedited means of obtaining
Board approval and authorization provided that certain required
information is submitted and three criteria are met: (i) The railroads
would not connect with each other or any railroads in their corporate
family, (ii) the acquisition or continuance in control is not part of a
series of anticipated transactions that would connect the railroads
with each other or any railroad in their corporate family, and (iii)
the transaction does not involve a Class I carrier.
After considering the comments and other information submitted into
the record, the Board will allow the exemption to take effect. The
comments submitted do not undermine the applicability of the 49 CFR
1180.2(d)(2) class exemption process.
The P&W Commenters express concerns regarding the excursion
services,\8\ and four of the P&W Commenters request that the Board
impose a condition relating to development of the multi-use path, but
none of the P&W Commenters oppose the proposed transaction. Nor do the
P&W Commenters suggest that the proposed transaction is not appropriate
for a notice of exemption or that it would have anticompetitive
effects. The Board appreciates the information and perspective of the
P&W Commenters. However, the P&W Comments have not described how the
requested condition is relevant to the considerations under 49 CFR
1180.2(d)(2) nor have they provided any legal basis for imposing such a
condition. The Board concludes that the requested condition is not
warranted and, further, Applicants' September 5 reply comments have
sufficiently addressed the concerns expressed by the P&W Commenters.
(See Applicants Reply 2-4.)
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\8\ The City of Woonsocket expressed interest in the return of
commuter rail service on P&W lines but did not oppose the proposed
transaction.
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Dalrymple asserts that Sec. 1180.2(d)(2) is inapplicable and
suggests that the proposed transaction would result in anticompetitive
outcomes, but she does not explain how the assertions raised in her
comments (e.g., past decapitalization of an Australian railroad
controlled by Brookfield and various negative financial impacts in that
country, and concerns about Brookfield's corporate structure)
demonstrate that the class exemption criteria are not met, or how the
assertions would support a finding of anticompetitive effects. The
proposed transaction would change the ownership of GWI, as opposed to
changing relationships with carriers outside the GWI corporate family
or increasing common control of railroads subject to the Board's
jurisdiction.\9\
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\9\ Regarding the applicability of Sec. 1180.2(d)(2), the
control of another rail carrier outside the United States is not
within the Board's jurisdiction and does not make an entity a rail
carrier. See 49 U.S.C. 10501(a); 49 U.S.C. Sec. 11323(a).
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Similarly, 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. SMART/TD-NY asserts that the proposed
transaction ``raises competitive questions,'' (SMART/TD-NY Reply 8-9),
but does not otherwise explain this claim aside from a reference to
transportation of soybeans in Brazil for sale in international markets.
But see 49 U.S.C. 10501(a) (Board jurisdiction applies to
transportation in the United States). Finally, except for an assertion
that ``GIC is important'' to the proposed transaction, SMART/TD-NY does
not state why GIC should be required to be an applicant.\10\ (SMART/TD-
NY Reply 4-5.)
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\10\ As noted above, Applicants included in their September 9
response a verification from James Rickert, President of DJP, that,
at closing of the proposed transaction, GIC would have an
approximately 27% equity interest in DJP and same percentage vote on
the DJP board of directors. (Applicants Response 2 n.4 &
Verification, Sept. 9, 2019.)
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Accordingly, Applicants' notice of exemption will become effective
on the service date of this decision. Because the overall transaction
is also subject to CFIUS approval,\11\ Applicants will remain subject
to the Board's previous direction to provide updates regarding the
status of CFIUS review and to provide an update within seven days after
they are notified of the outcome of such review.
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\11\ (See Applicants Comment 12, Aug. 16, 2019.)
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It is ordered:
1. The exemption will become effective on the service date of this
decision.
2. Notice of this decision will be published in the Federal
Register.
3. This decision is effective on its service date.
Decided: October 28, 2019.
By the Board, Board Members Begeman, Fuchs, and Oberman. Board
Member Oberman commented with a separate expression.
BOARD MEMBER OBERMAN, commenting:
Because this transaction meets the requirements of 49 CFR
1180.2(d), and because, as stated in the decision, the comments
submitted have not undermined the applicability of the class exemption
process, I join in approving the transaction's going forward as a class
exemption. Nevertheless, I write separately to express my concerns with
the use of the class exemption process for transactions of this
magnitude.
[[Page 58801]]
GWI's North American operations, which will be acquired pursuant to
the proposed transaction, include 106 short line and regional railroads
subject to Board jurisdiction, (Verified Notice 1), and operations in
41 states with over 13,000 track miles. See Genesee & Wyoming Inc.,
About Us, https://www.gwrr.com/about_us (last visited Oct. 28, 2019).
GWI's 2018 North American operating revenues totaled $1.36 billion.
Genesee & Wyoming, Inc., 2018 Annual Report 7 (2019). GWI's railroads
are essential to serving a large number of shippers and receivers and
constitute essential links in the national rail network. Most or all of
the country's Class I railroads could not serve many of their customers
without the service provided by GWI's railroads. Indeed, if GWI were
itself a rail carrier, its North American operations would clearly make
it a Class I carrier.\1\ As it is, GWI is a widespread presence
throughout the national rail network, in which it plays an integral
role. Thus, 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.\2\
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\1\ See Indexing the Annual Operating Revenues of R.R.s, EP 748
(STB served June 14, 2019) (calculating Class I revenue threshold at
$489,935,956).
\2\ Cf. Fortress Inv. Grp. LLC--Control Exemption--RailAmerica,
Inc., FD 34972 (STB served Dec. 22, 2006) (publishing notice for the
acquisition of 30 rail carriers); Mont. Rail Link, Inc.--Exemption
Acquis. & Operation--Certain Lines of Burlington N. R.R., FD 31089
(ICC served May 26, 1988) (denying petitions for revocation of
notice of exemption permitting acquisition of two non-contiguous
segments of rail line totaling 830.62 miles in length in Montana and
Idaho); Wisc. Cent. Ltd.--Exemption Acquis. & Operation--Certain
Lines of Soo Line R.R., FD 31102 (ICC served Oct. 8, 1987) (vacating
stay and permitting consummation of a class exemption for the
acquisition of 1,801 miles of rail line in Wisconsin and parts of
Michigan, Minnesota, and Illinois; acquisition of 173.6 miles of
trackage rights in Wisconsin and parts of Minnesota and Illinois;
and assignment of 27.7 miles of trackage rights on third-party
carriers in Wisconsin).
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For these reasons, 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. While I agree that, under existing regulations, this transaction
may proceed as a class exemption, I do think the Board should consider
in the future whether the exemption process should be applicable to
transactions of such scale.
Jeffrey Herzig,
Clearance Clerk.
[FR Doc. 2019-23956 Filed 10-31-19; 8:45 am]
BILLING CODE 4915-01-P