Market-share data, lack of full merger agreement, TRRA transaction cited is STB ruling that application is incomplete
WASHINGTON — The Surface Transportation Board today issued a setback to Union Pacific’s effort to acquire Norfolk Southern, rejecting the railroads’ merger application as incomplete — although that move offers little clue to the eventual prospects for the first transcontinental merger.
The decision will slow the merger process, requiring the two railroads to rework three areas where the board found fault with the original 6,692-page application filed in December. UP and NS have until June to submit a revised application, but are not expected to need that long.
The board said in its 15-page decision that it rejected the application based on problems with market-share data, the failure to include the complete merger agreement between the two railroads, and how the application addressed control of the Terminal Railroad Association of St. Louis.
To the first point, the board found a disconnect between the application’s projections of extensive growth and its use of 2023 data to define the market share that would be controlled by the merged railroads. “The application does not contain future market share projections showing the combined effects of merger-related growth, diversions, and merger-influenced and other changes to market conditions that Applicants anticipate,” the board said in a press release. “Today’s decision finds that Applicants’ market impact analyses must necessarily project market shares beyond the transaction’s consummation date, and therefore that the application does not include the ‘projected market shares’ as required,” the release says.
The board also agreed with the contention made by other railroads that the application was incomplete because it did not include all of the merger agreement between UP and NS, omitting a section on terms that would allow UP to walk away from the transaction. The lack of that information means the application does not, as required, contain all “contract[s] or other written instrument[s] … pertaining to the proposed transaction,” the board found, and also did not justify the decision to withhold that information.
Finally, the UP-NS application treated the disposition of the TRRA as a minor transaction, but the board ruled it is a significant transaction, which in itself requires a more detailed application. Because the application regarding the TRRA is incomplete, the larger UP-NS application is also, the board said.
The TRRA is jointly owned by UP, NS, BNSF Railway, Canadian National, and CSX. The merger would give UP a controlling interest, although the merger application says UP plans to divest the share that would give it control. The TRRA application connected to the UP-NS deal addresses control if divestiture cannot be completed by the time the UP-NS deal is consummated.
The board noted that commenters had argued that the application was incomplete in other ways, but said it would not reject the application on those grounds, but reiterated that “should the applicants choose to file a revised application, nothing prevents Applicants from making additional changes to improve their Application now that they have received comments from other stakeholders.”
The board said in its press release that today’s decision “should not be read as an indication of how the Board might ultimately assess any future revised application.”
And there is recent precedent for rejection of an application that was ultimately approved. The initial CSX application to acquire Pan Am Railways was rejected for lacking all necessary market analysis [see “Federal regulators reject CSX-Pan Am merger application …,” Trains.com, May 26, 2021.] An updated application was filed three months later and accepted by the STB; the board went on to approve that application in April 2022 [see “Regulators approve CSX Transportation’s acquisition …,” April 14, 2022].
UP and NS have until Feb. 17 to inform the board if they will file an updated application, and until June 22 to complete that filing. An analyst note from financial services company Baird estimated this week an updated application could take 30 to 90 days to complete.
Union Pacific’s response to the decision was terse: “Union Pacific will provide the additional information requested by the Surface Transportation Board.”
Other Class I railroads welcomed the news.
The longest comment came from Canadian National, which this week asked the STB to compel UP and NS provide more information. CN said the board had “rightly” rejected the application.
“Simply put this application is missing the last mile,” CN said. “This decision reinforces that a merger of this scale cannot be assessed on omissions or partial disclosure and must be evaluated on a full and transparent record, as required by the heightened standards under the new merger rules. …
“As noted earlier, applicants had refused information critical to understand their perspectives on anticipated competitive harms and inform the Board’s public-interest and competitive analyses. The Board rightly found that applicants needed to provide that information.”
BNSF Railway said it applauded the STB decision “based on the application lacking core information critical to determining the proposed merger’s impact on competition. We also appreciate the STB’s willingness to consider the views of all stakeholders as part of the regulatory review process.”
CSX said similarly, “We appreciate the Surface Transportation Board’s thorough review and consideration of public and stakeholder input. We will continue to actively participate in the STB’s review process to ensure CSX remains well-positioned to compete, reinvest in our network, and deliver best-in-class service for our customers.”
CPKC had the briefest response: “Today’s decision clearly demonstrates what we have believed from the beginning, that the Surface Transportation Board will thoroughly review and carefully consider this proposal.”
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