Union Pacific returned to the U.S. Surface Transportation Board with a revised bid to combine with Norfolk Southern, arguing regulators should approve the proposed $85 billion acquisition this time. Omaha, Nebraska-based Union Pacific filed the updated application Thursday, after the STB rejected its earlier submission in January, saying it lacked required details about competition among the five remaining major freight railroads and the effect on customers.
The STB has 30 days to decide whether to accept the revised application, and if it does, the proposal would move into a detailed review that Union Pacific said is expected to take more than a year. In the meantime, the revised filing keeps the focus on whether the merger would enhance competition rather than reduce it, the same standard the STB has used historically for large railroad combinations.
Union Pacific CEO Jim Vena told regulators the new application makes “an even stronger case” for benefits that he said would improve service and reduce shipping times. He said the railroad’s plan would shave a day or two off delivery for many shipments by eliminating handoffs between two railroads in the middle of the country, based on Union Pacific’s assessment of how traffic would flow under a combined network.
Union Pacific also told the STB that the merger could move volume away from highways and onto rails at scale. The company projected shifting 2.1 million truckloads to trains, and said doing so could save shippers $3.5 billion because rail is cheaper than trucking over long distances.
Opponents, including some current major rail shippers and rail competitors, have argued that the merger would increase market power and could drive up rates for customers with limited options besides rail. The complaints include concerns that shipping rates could rise for existing customers if the combined railroads gain monopoly power across the country, according to the new filing’s discussion of critics’ position.
Katie Farmer, CEO of BNSF, argued against the deal in a quote included in the reporting. “This did not begin with a customer asking for a UP-NS merger to happen,” Farmer said. “It’s driven by Wall Street on the promise of a big shareholder payout. It will eliminate competition, raise costs for consumers, and destabilize the supply chain that powers the American economy.”
Union Pacific said it does not plan to compete with that argument by trying to avoid scrutiny, but instead by emphasizing operational preparation and safeguards intended to limit disruption. Vena said the railroads can avoid integration problems seen in some past mergers by “taking it slow while listening to a new board of customers about the impact,” and he compared the planned period to an extended, difficult contest in which service and pricing would be tested rather than assumed.
The merger has also generated debate about employment and the economics of staffing changes. Union Pacific said it has promised that union employees who have jobs with either railroad at the time of the merger will have jobs for life, while acknowledging that the workforce could still shrink through attrition if shipment volumes slow. Union Pacific also predicted that more than 1,200 new jobs would be created by the third year after approval, revising an earlier projection of 900 new jobs based on updated traffic data analyzed across the major freight railroads.
Union Pacific said the deal includes additional deal terms that could change its risk profile as regulators and the public review proceed. The company said it could consider walking away if the STB requires more than $750 million in concessions, and it said the agreement gives Norfolk Southern a $2.5 billion breakup fee if the deal falls apart.
As the review process begins, the two rail networks described in the filing largely overlap across different regions of the country today. Norfolk Southern and CSX serve the eastern U.S., while Union Pacific and BNSF serve the west, and the two major Canadian railroads compete through tracks that cross Canada and extend into the United States and Mexico. Union Pacific said it expects a merged company would control nearly 40% of the nation’s freight, while also saying that BNSF currently delivers that amount and therefore the deal would shift which railroad dominates rather than dramatically change the competitive balance.
Union Pacific also addressed specific competition concerns about a major rail asset in St. Louis. The company said it will ensure the merged railroad never controls more than 50% of the Terminal Railroad Association of St. Louis after opponents questioned its earlier approach. The company said Union Pacific currently owns nearly 43% of the terminal railroad, while Norfolk Southern owns more than 14%, and it said it had previously suggested temporarily becoming the majority owner during the transition after the merger.
One quote from Vena was also included in the reporting as the CEO argued for an outcome favorable to customers. “The first few years after this, it’s gonna be like one of those old 15-round boxing fights. Prices are gonna be used, the service is going to be used, everything. And I think the customer’s going to be the winner in all this while we knock down, drag it out, to see who can win and grow their market share,” Vena said.