UPDATE 1-U.S. Justice Dept urges rejection of CP, Norfolk Southern voting trust

(Adds details from statement, background and context on voting
trust)
By Nick Carey and Tim Ahmann
CHICAGO/WASHINGTON, April 8 (Reuters) - The U.S. Justice
Department on Friday urged a regulator to reject a voting trust
Canadian Pacific Railway Ltd CP.TO has proposed as part of its
takeover bid for Norfolk Southern Corp (NYSE:NSC) NSC.N , saying it could
hurt competition and would violate rules.
In mid-November, CP disclosed a $28 billion offer for
Norfolk, Virginia-based company, which has rebuffed all advances
from the railroad, Canada's second-largest.
Canadian Pacific proposes sending its chief executive
officer, Hunter Harrison, to run Norfolk Southern as part of
that trust. But the rules of the Surface Transportation Board
require the companies to run independently of each other while
it reviews any deal.
The Justice Department said in a statement that it had told
the STB that the voting trust would also fail to preserve the
companies' independence during the review.
Calgary-based CP, which is Canada's second-largest railroad,
has said a merger would result in savings of more than $1.8
billion annually. It did not immediately respond to a request
for comment on Friday.
If Norfolk Southern accepts CP's bid, this would be the
first such review by the STB since the regulator's merger rules
were rewritten in 2001. The new rules are tougher and include
additional regulatory hurdles.
The letter comes in response to a March 2 petition from CP
to the STB seeking a "declaratory order" on its voting trust
proposal.
In its statement, the Justice Department said that by
effecting a management change in Norfolk Southern, CP's proposal
"is even more pernicious in its failure to preserve competition
than a typical voting trust.
"The STB should find that the proposal fails under each
prong of the revised regulatory requirement - it creates
unlawful control violations and is against the public interest,"
the statement said.
Experts had said the voting trust structure CP proposed
would face tough scrutiny from the STB.
On Thursday, the U.S. Department of Defense also raised
concerns with the STB over CP's proposed voting trust.