STB broadens review of Union Pacific–Norfolk Southern merger

Union Pacific–Norfolk Southern merger review is taking a broader turn. The Surface Transportation Board is seeking additional internal records. It also signals that it may use a wider merger-review framework. That framework is similar to the one federal antitrust regulators apply in other industries.

Also, two former STB chairmen said the order is important. The order requires more internal merger documents from Union Pacific and Norfolk Southern.

Meanwhile, Trains reported last week that the board would use those practices. The board said it would use practices employed by the Justice Department and Federal Trade Commission. Those practices apply when those agencies assess mergers outside the rail industry.

In addition, former Chairman Martin J. Oberman said he saw the STB document order as a clear signal from the agency. “My take on it is that the board wanted to lay down a marker,” he tells Trains.

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Oberman also discussed the board’s unanimous ruling. He said it highlighted the exceptional scale of the Union Pacific–Norfolk Southern merger. He also said it could affect the broader economy.

Why the Union Pacific–Norfolk Southern merger is getting closer review?

Federal merger practices

“The effect of this decision is to further make it clear to the planet that the board is independent, and it’s going to review the merger just the way it thinks it should be reviewed,” Oberman says. “And these are not going to be political decisions. These are going to be decisions on the economic and legal merits of this transaction.”

Union Pacific had maintained that the STB should not mirror that process. The Justice Department and FTC use that process. They use it under the Hart-Scott-Rodino Antitrust Improvements Act.

That process includes requests for information related to competition. It also covers confidential memoranda. In addition, it covers outside studies. It also covers reports and data supporting claimed merger synergies.

Also, Oberman said the board made that point clearly. It did not see a basic conflict between those statutes and its own authority. He said this applied at least on discovery matters. “The board went out of its way to say we don’t see any fundamental inconsistencies between those laws and our laws, at least in terms of discovery,” says Oberman, who chaired the board during review of the Canadian Pacific-Kansas City Southern merger and CSX’s acquisition of regional Pan Am Railways.

Timing and authority

Separately, the STB also noted that it had used this authority after the July announcement. It did so before the rail merger application was submitted in December. “It will do so again here,” the board said last week.

Justice Department merger review and internal documents

Requests from BNSF and DOJ

Also, Roger Nober said the railroads should expect a demanding process. He was the board’s second chairman. He served at the agency from 2002 through 2006. He tells Trains that “UP should recognize that the regulatory review process is going to be extensive and in-depth, as it should be.”

At the same time, BNSF asked the STB for more merger-related documents earlier this year. It asked the board to compel UP and NS to disclose them. CPKC later backed that request in a letter. The Justice Department’s Antitrust Division then urged the board to seek those materials as well.

Still, the STB rejected BNSF’s filing. It came after the applicable regulatory deadline.

Nober’s view

For example, Nober said the ruling has two dimensions. “My initial take is twofold. On the one hand, substantively the decision is probably not hugely significant since much of the same information would (likely) ultimately be subject to discovery in the ongoing process, and the underlying BNSF/CPKC–UP/NS discovery dispute was as much about timing of disclosure as it is about the actual breadth of documents disclosed,” Nober says. “On the other, DOJ weighing in is significant in and of itself, particularly in this administration and in a manner favoring expansive discovery.”

In addition, he said the STB was not obligated to grant the Justice Department’s request. All three members chose to do so. “I think that was both a savvy political move on the STB’s part and reflects that the members want a full and expansive review,” Nober says.

What the STB order means for the merger application?

The board’s ruling

Meanwhile, that reading is reinforced by the board’s seven-page ruling. “The Board finds that it is appropriate to order the submission of the ‘ordinary course’ documents here given the proposed transaction’s size and significance for the rail transportation system, and because the transaction is the first to be assessed under the 2001 merger rules,” the STB said. “Moreover, the Board finds that these documents will assist it in determining whether the proposed transaction is likely to have the effects attributed to it by Applicants and whether the transaction is consistent with the public interest, which requires consideration of the proposal’s competitive effects.”

What comes next?

In addition, Anthony B. Hatch gave his view. He said the $85 billion transaction is likely headed for a long review.

By contrast, UP CEO Jim Vena has been pushing for a faster regulatory process. He has said the deal would strengthen the economy. He has also said it would improve the global competitiveness of American companies. In addition, he has said it would help drive a manufacturing renaissance in the U.S.

“It’s a blow to the ‘get it done in a hot hurry’ thesis and a reminder that UP must be fair in discovery,” Hatch says. “I don’t buy that the DOJ has a say. But [STB Chairman] Patrick Fuchs is nothing if not analytical and data-driven.”

Also, the STB alone has authority to approve or deny rail mergers. It also takes into account the views of the Justice Department’s Antitrust Division.

Separately, on Jan. 16, the Surface Transportation Board rejected the UP-NS merger application. It called the filing incomplete. It also said the filing had not fully addressed the merger’s effect on competition. It also said the filing lacked the required post-merger market share data.

Still, the two railroads intend to submit a revised application on April 30. That filing date was previously covered by Railway Supply.

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