Federal Stake in Union Pacific Raises Merger Questions

A federal stake in Union Pacific was raised by President Donald Trump. He suggested it could be part of the railroad’s proposed merger with Norfolk Southern. This is reported by the railway transport news portal Railway Supply.

The comment came during an interview with Fortune Magazine. Trump was discussing his broader view that the government could take equity stakes in companies deemed essential to the United States. Also, he referred to chipmaker Intel and U.S. Steel as examples. He described such stakes as one possible way to help reduce the national debt.

According to Fortune, Trump told Editor-in-Chief Alyson Shontell, “I make one of those deals every day that no normal person would make,” while referring to a possible railroad merger in which he would want the government to hold equity.

Still, the Fortune article did not quote Trump naming Union Pacific or Norfolk Southern directly. It was published online on Monday.

Federal stake in Union Pacific and STB review

Independent analyst Anthony B. Hatch described the president’s remarks as “insanity.”

The Surface Transportation Board review process has no mechanism for including a government stake in a publicly traded railroad.

Meanwhile, the STB is examining Union Pacific’s revised merger application with Norfolk Southern. UP submitted the updated filing on April 30. The board had rejected the original application in January as incomplete. It also identified deficiencies that had to be corrected.

Hatch questioned how such an arrangement could work. “Whose stake would he buy? What will the other stakeholders, such as the … industries that rely on rail, think,” Hatch asks. “How can you regulate it? What happened to capitalism?”

Former STB Chairman Martin J. Oberman said the merger review remains governed by established law and procedure. “Nothing really changes,” says former STB Chairman Martin J. Oberman. “There are very clear statutes and regulatory rules and procedures for determining whether this merger can get approved. This board will follow those procedures.”

At the same time, Oberman said federal ownership would be a separate legal issue. “It’s such an odd concept it’s hard to evaluate it,” Oberman says.

Public ownership of railroads or rail infrastructure has been debated in the United States at different points. Such arrangements are common in Europe. “That’s not our system,” Oberman says.

Government equity stakes and railroad merger approval

The U.S. government has previously intervened in railroading when companies or services were financially troubled. For example, the best-known freight case is the 1976 creation of Conrail from failed Northeastern railroads. In passenger rail, the government created Amtrak in 1971. It took over money-losing passenger service.

The situation Trump described involving Union Pacific and Norfolk Southern is different in nature. Both railroads are highly profitable. Neither is financially distressed. Neither is seeking assistance. Instead, the federal government would potentially insert itself as a shareholder. That stake would be in exchange for regulatory approval of a private transaction.

In addition, such a stock arrangement would create another issue. The government would own part of a company regulated by two federal agencies. Those agencies are the Surface Transportation Board and the Federal Railroad Administration.

If the government invested in the railroad, the merger could still receive regulatory approval. Oberman said opponents could then challenge the decision in court. They could argue that the government’s ownership interest had improperly influenced the decision.

Still, Oberman said the idea of federal investment in the railroad is unprecedented enough to add regulatory uncertainty to the merger process.

Union Pacific declined to comment.

$85 billion UP acquisition of NS

Trump has previously spoken about Union Pacific’s $85 billion acquisition of Norfolk Southern. In September, during Oval Office remarks reported by White House media, he said the proposed combination would create the first transcontinental freight railroad. He said it “sounds good to me. Union Pacific is a great railroad.” Trump also said he liked Union Pacific CEO Jim Vena. The two had met at the White House.

Separately, Union Pacific was later among major corporations that donated to the private fund for Trump’s White House ballroom project. The railroad said its contribution was consistent with its long-term support for the National Park Service. The agency manages White House projects.

In March, Union Pacific unveiled a star-spangled locomotive honoring the president. The locomotive was part of its America 250 activities. Vena has said UP ET44AC No. 4547 was not a political statement. The road number references Trump’s two terms as the 45th and 47th president. Vena said it was intended as a celebration of 250 years of American independence.

News on railway transport, industry, and railway technologies from Railway Supply that you might have missed: