Regulator concerns pause Watco’s Michigan shortline rail deal

Federal regulators want Watco to provide more information about its proposed acquisition of Michigan short line Great Lakes Central before they will allow the deal to proceed.

Watco on March 6 sought to have the deal to acquire the 420-mile Great Lakes Central exempt from a Surface Transportation Board review, as is common when short lines change ownership.

But on Monday the STB said it needs more information to determine whether the deal qualifies for an exemption and began a formal review proceeding.

The board raised concerns about potential changes to Great Lakes’ interchanges with five railroads in light of Watco’s ownership of connecting short line Ann Arbor Railroad. Watco’s application says the transaction won’t reduce competition. But the STB said Watco doesn’t provide support for this claim and does not explain why it would not have an economic incentive to funnel interchange traffic to the Ann Arbor despite the potential for other, more efficient interline routings.

The board said it was unclear that the transaction would be limited in scope, which is one of the requirements for an acquisition to be exempt from regulatory review.

“GLC operates hundreds of miles of lines and has multiple interchange connections, including with three Class I carriers, yet the petition does not provide any traffic figures that would allow the Board to properly assess the scope of the transaction,” the STB wrote in its decision. “Moreover, the length of railroad involved is not determinative of whether a transaction is of limited scope.”

The board directed Watco to provide additional details and a copy of its purchase and sale agreement by June 20.

Watco has been an equity investor in the GLC since 2013. The GLC operates state-owned trackage and handles 48,000 carloads annually, including a diverse range of commodities such as soybeans, corn, and other agricultural products, fertilizers, plastics, and liquefied petroleum gas.

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