(Reuters) – The U.S. Surface Transportation Board (STB) on Tuesday rejected a voting trust proposed by Canadian National Railway Co for its $29 billion deal to buy U.S. railroad operator Kansas City Southern.

Shares of Kansas City Southern were down 3% after the decision, while the U.S.-listed shares of Canadian National Railway were trading up 5%.

The rail regulator’s ruling is a blow to Canadian National, which is locked in a takeover battle for Kansas City with smaller rival Canadian Pacific Railway Ltd, as the companies jostle to create the first direct railway linking Canada, the United States and Mexico.

“The Board finds that the proposed use of a voting trust in the context of the impending control application does not meet the standards under the current merger regulations,” the regulator said in a statement.

Canadian Pacific’s voting trust was approved by the STB when the company had initially struck a $25 billion deal in March, only to be trumped later by Canadian National.

CP then improved its offer to $27 billion this month, hoping antitrust concerns will give it an edge over its larger rival, but Kansas City rejected the new bid though the offer remains on the table.

A voting trust would insulate the acquisition target from the acquirer’s control until the STB clears the deal on a permanent basis.

The ruling comes amid sweeping executive orders issued by President Joe Biden aimed at promoting competition in the U.S. economy.

One such order encouraged the STB to consider Amtrak’s statutory rights when assessing whether a rail merger is in public interest.

Passenger railroad Amtrak, which is majority owned by the U.S. government, had opposed the Canadian National’s voting trust, saying its pledge to divest the Baton Rouge to New Orleans line will harm future passenger service in Louisiana.

Canadian National and Kansas City Southern did not immediately respond to a request for comment.

(Reporting by Shreyasee Raj and Abhijith Ganapavaram in Bengaluru; Editing by Sriraj Kalluvila)