Regulators accept Norfolk Southern rail merger application — with a catch

Credit: Hyosub Shin/AJC

Credit: Hyosub Shin/AJC

Omaha-based Union Pacific is seeking to acquire Atlanta-based Norfolk Southern for $85 billion and create the nation’s first transcontinental railroad company under the Union Pacific brand, headquartered in Nebraska.

The proposal has divided the rail industry and those that rely on it.

All of the railroads’ competitors, and a coalition of shippers and unions have been increasingly vocal about their opposition to the proposed consolidation and what it would mean for an already concentrated American freight rail industry.

A group of six Republican state attorneys general argued to the STB this week the deal would consolidate more than 50% of rail traffic to one company and could risk increasing costs for businesses and raising consumer prices.

The applicants, however, highlighted that more than 2,000 shippers, smaller railroads, ports, officials, unions and other stakeholders have submitted comments in support.

After the federal panel charged with regulating the industry rejected the initial merger application as “incomplete” in January, the companies refiled last month.

In a release Thursday the STB accepted the application as “complete,” but asked for “supplemental information” on nine different topics, including how the proposal would enhance competition, how it would affect shippers who will be losing access to a railroad option under the merger and possible downstream industry effects.

Under the board’s own rail merger rules passed after a wave of consolidation decades ago, any hopeful mergers must prove they “enhance” competition in the industry.

Union Pacific and Norfolk Southern have argued their deal does just that by better enabling rail to compete with trucks.

Credit: Jamie Kelter Davis

Credit: Jamie Kelter Davis

Opponents have pushed back that it would actually decrease competition within the rail industry itself.

The reaction to the board’s news was a similar split screen.

Union Pacific and Norfolk Southern applauded the application’s acceptance, acknowledged the requests for more information and reiterated their “commitment to work constructively with the STB.”

“We have more confidence than ever in the value this proposal will deliver for all stakeholders and look forward to a full and transparent review,” Norfolk Southern CEO Mark George said in a statement.

A coalition of those opposed, however, including several competitors, shipping groups and the Teamsters Rail Conference of labor unions, commended the agency’s “scrutiny” of the “bad NS-UP rail merger deal.”

The two companies have “once again submitted an extremely flawed proposal,” the Stop the Rail Merger Coalition statement reads.

“They have overstated benefits, minimized harms, and left critical questions unanswered. This merger is a bad deal for America and must be rejected.”

Patrick Whitehead, chief operations officer of Canadian National Railway, one of the four major rail competitors opposed to the deal, said the board “made clear that major questions about this merger remain unanswered.”

The application “continues to rely on incomplete data, unsupported assumptions, and vague promises that do not give regulators or stakeholders the confidence needed to evaluate a merger that would fundamentally reshape the North American rail network,” he said.

Speaking to investors last week, Union Pacific CEO Jim Vena said he expected it would take about a year for the board to rule on the proposal after they accepted the application.

Vena noted he had previously joked he’d hoped the deal could be done in time for his birthday — Aug. 17 of this year.

“You can dream,” he said.