The Strange Career of Independent Voting Trusts in U.S. Rail Mergers

Pittman, Russell (2016): The Strange Career of Independent Voting Trusts in U.S. Rail Mergers.

Abstract

Voting trust arrangements have a long history at both the Interstate Commerce Commission and the Surface Transportation Board as devices to protect the incentives of acquiring firms and maintain the independence of acquiring and target firms during the pendency of regulatory investigation of the merger proposal. However, they are not without problems. The STB argued in 2001 that as Class I railroads have become fewer and larger, it may be difficult to find alternative purchasers for the target firm if the STB turns down the proposal. The Antitrust Division argued in 2016 that joint stock ownership creates anticompetitive and/or otherwise undesirable incentives, even if the independence of the voting trustee is complete. On the other hand, the functions served by voting trusts in railroad mergers are served by merger termination fees and other contractual “lockup” mechanisms in other parts of the economy, without the same incentive problems as voting trusts. Thus voting trusts may no longer serve a useful function in railroad merger deliberations.

• Item Type: MPRA Paper
• Language: English
• Keywords: railroads, mergers, voting trusts, merger termination fees, merger lockup provisions
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; K - Law and Economics > K2 - Regulation and Business Law > K23 - Regulated Industries and Administrative Law; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L92 - Railroads and Other Surface Transportation; N - Economic History > N7 - Transport, Trade, Energy, Technology, and Other Services > N71 - U.S. ; Canada: Pre-1913; N - Economic History > N7 - Transport, Trade, Energy, Technology, and Other Services > N72 - U.S. ; Canada: 1913-

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