Coach USA, Inc.Petition for ExemptionIntra-Corporate Family Merger and Consolidation Transactions

DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

[STB Finance Docket No. 33685]

Coach USA, Inc.--Petition for Exemption--Intra-Corporate Family

Merger and Consolidation Transactions

AGENCY: Surface Transportation Board, DOT.

[[Page 25393]]

ACTION: Request for comments.

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SUMMARY: The Surface Transportation Board (Board) is seeking comments

on a petition by Coach USA, Inc. (Coach) to be exempted from 49 U.S.C.

14303 and the regulations at 49 CFR part 1182 concerning the merger or

consolidation of motor carriers of passengers controlled by Coach.

DATES: Comments are due on June 10, 1999.

FOR FURTHER INFORMATION CONTACT: Beryl Gordon, (202) 565-1600. [TDD for

the hearing impaired: (202) 565-1695.]

SUPPLEMENTARY INFORMATION: Coach has filed a petition for exemption

requesting that it be exempted from the prior approval requirements of

section 14303 for mergers or consolidations of motor carriers of

passengers Coach already controls. Under its proposal, Coach would file

a notice similar to the one applicable for class exemptions for

railroad intra-corporate family transactions that do not result in

significant operational changes, adverse changes in service levels, or

a change in the competitive balance with carriers outside the corporate

family. See 49 CFR 1180.2(d)(3) and 1180.4(g).

When the petition was filed, Coach, a noncarrier holding company,

stated that it controlled, inter alia, 73 motor carriers of passengers

subject to federal regulation (Operating Carriers). Coach states its

plans to transfer direct control of the Operating Carriers to several

new, wholly owned, primarily regionally-based subsidiaries (Management

Companies), which would manage closely the Operating Carriers assigned

to them. 1 As relevant here, each Management Company

evidently would examine the Operating Carriers it controls to determine

whether consolidations, mergers or other intra-family corporate

transactions involving these carriers are warranted.

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\1\ Tentative approval has been given to these applications.

See Coach USA, Inc., and Coach USA North Central, Inc.--Control--

Nine Motor Passenger Carriers, STB Docket No. MC-F-20931; Coach USA,

Inc., and Coach USA Northeast, Inc.--Control--30 Motor Passenger

Carriers, STB Docket No. MC-F-20932; Coach USA, Inc., and Coach USA

South Central, Inc.--Control--Eight Motor Passenger Carriers, STB

Docket No. MC-F-20933; Coach USA, Inc., and Coach USA Southeast,

Inc.--Control--Seven Motor Passenger Carriers, STB Docket No. MC-F-

20934; Coach USA, Inc., and Coach USA West, Inc.--Control--14 Motor

Passenger Carriers STB Docket No. MC-F-20935; Coach USA, Inc., and

Yellow Cab Service Corporation--Control--Four Motor Passenger

Carriers, STB Docket No. MC-F-20936 (STB served Nov. 19, 1998); and

Coach USA, Inc. and Coach Canada, Inc.--Control and Continuance in

Control--Autocar Connaisseur, Inc., Erie Coach Lines Company, and

Trentway-Wagar, Inc., STB Docket No. MC-F-20938 (STB served Dec. 17,

1998).

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Coach asserts that there are currently two procedures available for

seeking Board approval for mergers/consolidations. First, Coach can

file an application under 49 CFR part 1182 for merger authority. Under

this procedure, an accepted application will be published in the

Federal Register within 30 days of filing as a tentative grant of

authority, with comments due within 45 days. 2 If no adverse

comments are timely filed, the tentative grant becomes effective

automatically. If opposing comments are filed, the applicant can reply

within 60 days of the filing of the application. The Board will then

determine whether to issue a decision on the record developed or to

receive more evidence before issuing a decision. 3

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\2\ A tentative grant does not give the applicant the right to

consummate the transaction before the end of the comment period. 49

CFR 1182.5(a).

\3\ Under the statute, evidentiary proceedings are to be

concluded within 240 days of publication of the application. The

Board must issue a decision within 180 days after the close of the

evidence. Time periods may be extended, in total, for up to 90 days.

49 U.S.C. 14303(e).

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In the alternative, a party can file a petition for exemption under

49 U.S.C. 13541 seeking an individual exemption from the prior approval

requirements of 49 U.S.C. 14303 for the merger or consolidation. Coach

argues that these proceedings take 3 or 4 months from the filing of the

petition to complete. We have indicated that we would normally process

exemptions as we do applications: we would publish the exemption

request within 30 days of filing, and, after the comment period had

expired, we would issue a decision on the merits of the petition. See

Revision to Regulations Governing Finance Applications Involving Motor

Passenger Carriers, STB Ex Parte No. 559 (STB served July 8, 1997) at

6. 4

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\4\ This option is made possible by the ICC Termination Act of

1995, Pub. L. 104-88, 109 Stat. 803 (1995) (ICCTA). Under former 49

U.S.C. 11343(e), the Interstate Commerce Commission could only grant

exemptions for finance transactions involving motor carriers of

property. Id. at 6, n.10.

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Coach contends that, under present procedures, it takes a minimum

of two and one half months to be approved or exempted: ``During this

hiatus, the transaction could not be consummated and the benefits that

would have accrued from the merger or consolidation would not be

available to the traveling public or the merged/consolidated entity.''

Petition at 2.

Coach proposes that the exemption for Coach intra-corporate family

transactions would be similar to the rail exemption for intra-corporate

family transactions. Coach and/or one of its subsidiaries would file a

verified notice of exemption with the Board for the merger or

consolidation of at least two Coach-controlled carriers, which could be

consummated no sooner than 7 days after the filing of the notice.

Included in the notice would be a summary of the transaction and the

purpose of the transaction, of any contracts being entered into

concerning the transaction, and of the effects, if any, on employees. A

copy of the notice would be sent simultaneously to the Federal Highway

Administration (FHWA) 5 and, when the carriers provide

intrastate service, to the applicable state regulatory body. Coach

proposes that the Board would publish the notice of exemption in the

Federal Register within 30 days of filing. Coach also proposes that, if

the notice contains false or misleading information that is brought to

our attention, we could revoke the exemption and order divestiture.

Coach also submits that petitions for revocation could be filed at any

time pursuant to 49 U.S.C. 13541(d).6

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\5\ Also, approval from FHWA, if needed, for any transfer of

operating authorities, would be sought.

\6\ This provision states that the Board ``may revoke an

exemption . . . on finding that the application of a provision . . .

is necessary to carry out the transportation policy of section

13101.''

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Coach notes that, under 49 U.S.C. 13541(a), the Board must exempt a

transaction or service from regulation when we find that: (1)

Regulation is not necessary to carry out the transportation policy of

49 U.S.C. 13101; (2) either (a) regulation is not necessary to protect

shippers from the abuse of market power, or (b) the transaction or

service is of limited scope; and (3) exemption is in the public

interest.

Transportation Policy. Coach claims that the operational and

efficiency advantages of its intra-corporate merger/consolidation

transactions will further the transportation policy goals of 49 U.S.C.

13101(a)(2). The benefits of these transactions ``include consolidated

management, streamlined operational procedures, elimination of

redundancies and better coordinated planning, safety and other

management services that will enable the companies to operate more

economically and efficiently * * *'' Id. at 10. Coach also maintains

that granting an exemption will produce expeditious decisions,

enhancing the efficiency of regulation, and is thus consistent with 49

U.S.C. 13101(a)(2)(B).

Abuse of Market Power. Coach argues that there will be no risk of

an abuse of market power from the intra-corporate family transactions,

because they will not reduce competition: ``None of the Operating

Carriers today competes to any significant degree, if at all, with any

of the other Operating Carriers.'' Id. at

[[Page 25394]]

11. These companies allegedly face significant competition from other

bus carriers, private cars, and other modes of transportation. Coach

contends that the Board has already approved Coach mergers in

connection with control transactions.7 Finally, Coach

submits that competitive issues are more appropriately considered in a

control proceeding because carriers under common control will be

unlikely to compete with each other, than in a situation where the

controlled carriers are seeking to merge for, according to Coach,

``there should be no loss of competitive options available to the

traveling public.'' Id. at 13 (citations omitted).

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\7\ See Coach USA, Inc. and Leisure Time Tours-Control and

Merger Exemption-Van Nortwick Bros., Inc, et al., STB Docket No.

33428 (STB served Nov. 3, 1997) and Coach U.S.A., Inc. and K-T

Contract Services, Inc.--Control and Merger Exemption--Gray Line

Tours of Southern Nevada, STB Docket No. 33421 (STB served Dec. 4,

1997).

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Limited Scope. Coach contends that the proposed exemption is of

limited scope because it involves carriers already under common

control. Because, allegedly, the carriers share centralized management,

the merger/consolidation ``transactions will accordingly be more

focused on corporate form than on substantive operational changes.''

Id. at 14.

Coach submits that most of the Operating Carriers it controls are

relatively small. More than half of them have annual revenues of less

than $8 million, few have annual revenues of more than $20 million, and

most of the Operating Carriers have fleets of less than 75 buses. Coach

argues that, consistent with the standards for rail intra-corporate

family transactions at 49 CFR 1180.2(d)(3), in the merger or

consolidation of its Operating Carriers ``there will be no adverse

change in service levels, no significant operational changes that would

adversely impact the traveling public and no diminution in the level of

competitive service available to the public.'' Id. at 15.

Public Interest. The exemption is in the public interest, according

to Coach, because it will increase regulatory efficiency by reducing

potentially burdensome regulatory practices. Such efficiency, Coach

alleges, would save the resources of both petitioners and the Board.

In addition to these stated regulatory benefits, Coach claims that

there are also commercial reasons for determining that an exemption is

in the public interest. By reducing from two and a half months to 7

days the period for consummating a transaction after a filing, the

period that the two merged companies are in limbo would be

significantly reduced, lowering the danger that the petitioner will

miss out on commercial opportunities for improving service. Coach also

claims that, under an exemption, the public and the Operating Carriers

would sooner enjoy the benefits of the intra-corporate family

transaction. Finally, Coach asserts that reducing the regulatory

waiting period will lessen uncertainty in vendors and passengers.

Discussion

As Coach's petition raises issues of first impression, we are

seeking comment on Coach's petition. Commenters should address whether

an exemption for intra-corporate family transactions is warranted and,

if so, whether it should be available solely to Coach.

As a preliminary matter, we do not see how a class exemption could

apply only to one party. If the exemption criteria are satisfied for

Coach, they would also presumably apply to other parties, if any are

similarly situated. Parties should address this issue.

We also question whether the concerns raised by Coach cannot be

addressed under our current rules at least in those cases where there

is a demonstrated need for quick action by the Board. Under 49 U.S.C.

14303(i), pending the Board's consideration of an application, we may

grant interim approval to the operation of properties sought to be

acquired for not more than 180 days ``when it appears that failure to

do so may result in the destruction of or injury to those properties or

substantially interfere with their future usefulness in providing

adequate and continuous service to the public.'' See also 49 CFR

1182.7. If the interim approval request is submitted when the

application is filed, the Board will issue its decision with the notice

accepting the application, i.e., within 30 days. Section 1182.7(d)(1).

This is quicker than the two and one half months that Coach claims is

too long and only 23 days longer than the effective date under Coach's

proposal.

Accordingly, commenters should address these issues, as well as the

general issue of whether the exemption Coach proposes is in the public

interest. Also, a copy of this request for comments will be served on

the Department of Justice, Antitrust Division, 10th Street &

Pennsylvania Avenue, NW., Washington, DC 20530.

This action will not significantly affect either the quality of the

human environment or the conservation of energy resources.

Decided: May 4, 1999.

By the Board, Chairman Morgan, Vice Chairman Clyburn, and

Commissioner Burkes.

Vernon A. Williams,

Secretary.

[FR Doc. 99-11877 Filed 5-10-99; 8:45 am]

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