Union Pacific Norfolk Southern Merger Application Defended

The Union Pacific Norfolk Southern merger application should move forward for continued regulatory review, the two railroads argue as they ask the Surface Transportation Board to reject attempts to dismiss the proposed transaction at an early stage.

Their response addresses three motions filed by BNSF Railway, CSX, and a coalition of shipper organizations. Those parties want the STB to reject the application immediately, arguing that UP and NS failed to establish a prima facie, or first-look, case supporting the transaction. CPKC and several other organizations have submitted comments supporting those requests.

Merger application meets the prima facie standard, railroads argue

In a 43-page filing, Union Pacific and Norfolk Southern describe their amended merger application as containing “an unprecedented level of evidence, including robust expert analysis.” They argue that the material is sufficient at this stage to show that the proposed merger can be considered consistent with the public interest under the STB’s 2001 rules for major rail transactions. Union Pacific and Norfolk Southern’s Aug. 26 response

Union Pacific CEO Jim Vena said in an Aug. 26 press release accompanying the filing:

“We’ve more than cleared the threshold to move review of this transaction forward, and opponents’ efforts to kill the deal do not change the facts,”

“… The facts show this merger will create a stronger, more efficient single-line rail network that improves service for farmers and American industry, strengthens competition and moves more freight off the highway and onto rail — a service product our opposition is afraid to compete with.”

A central part of the companies’ argument is what the prima facie review is intended to determine. At this stage, the facts in an application are considered in their most favorable light to decide whether the proposed transaction can be found consistent with the public interest. The application must also contain enough evidence for the STB to carry out its statutory responsibilities.

UP and NS contend that the amended filing “provides overwhelming confirmation” that the transaction satisfies the applicable public-interest standard. They also state that the application “indisputably presents facts that are more than sufficient to show the merger is consistent with the public interest.”

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STB review separates initial threshold from merger merits

The railroads also point to the STB’s Aug. 18 decision establishing the schedule for reviewing the Union Pacific Norfolk Southern merger application. STB’s UP-NS merger resources and Aug. 18 procedural decision In that decision, the board said that many issues raised in requests for summary denial concerned the merits of the proposed transaction.

UP and NS argue that those questions belong later in the proceeding rather than in the initial prima facie review. They say the arguments advanced by opponents “are neither relevant to the prima facie inquiry or correct. … filings by opponents of the transaction are properly seen as thinly disguised efforts to steal additional bites at the apple for those merits-related arguments.”

The applicants further maintain that the objections “do nothing to undermine the conclusion that the proposed transaction meets every element of the relevant statutes and regulations and is consistent with the public interest.”

Much of the filing repeats benefits that Union Pacific and Norfolk Southern have previously attributed to the proposed combination. Their case includes claims of improved service, stronger competition, greater economic efficiency, better safety, and benefits for employees and the environment.

The companies also cite information in their application in response to criticism involving possible service disruptions, the effects of a vertical merger, rail-to-rail competition, and other disputed issues.

UP and NS additionally reject the argument that they must propose conditions intended to increase competition as part of the application. They contend that the STB’s merger rules do not require them to propose conditions that would enhance competition.

“Moreover, the ultimate weighing of a proposed transaction’s benefits and harms is a merits-stage decision,” they contend.

In their conclusion, the railroads characterize the challenges as “a coordinated effort to litigate the merits before their own arguments face scrutiny.” They argue that the opponents’ “merits-based objections are untethered from that governing legal standard [for a prima facie argument] and provide no basis to conclude otherwise.”

Regulatory review moves to its next stage

The procedural timetable issued by the STB on Aug. 18 moves the case into the next stage of regulatory review, with dates for public input, evidence submissions, and the board’s final deliberation.

Norfolk Southern President and CEO Mark George said the companies view the proposed transaction as a means of expanding rail freight activity.

“Our application clearly shows this merger is about growth. … By bringing these two great networks together, we will reverse the loss of share to the highway and actually grow rail’s share of freight transportation, creating new opportunities for our workforce while delivering long-term benefits for the customers and communities we serve.”

The companies say the combined network would create a more efficient single-line operation, improve service for agricultural and industrial customers, strengthen competition, and shift more freight from highways to rail.

They have also said the transaction would provide lifetime job security for unionized employees and could add positions as demand and service levels rise. Their application presents those commitments alongside the broader operational, competitive, workforce, customer, and environmental benefits they say would result from the merger.