The UP-NS merger application will be accepted as complete by the Surface Transportation Board, Union Pacific Chief Executive Jim Vena says. He says the revised filing answers the questions regulators raised about the initial version. This is reported by the railway transport news portal Railway Supply.

UP and NS Revive $85 Billion Coast-to-Coast Merger Push With Sweeping STB Filing
Union Pacific Railroad/Norfolk Southern Railway

The board had found the first filing incomplete. Vena said the updated application now includes the full merger agreement. It also includes language explaining what STB-imposed conditions could lead Union Pacific to abandon the $85 billion transaction.

That language ties the completeness review to a question already built into the filing: what conditions could make Union Pacific walk away from the deal.

STB review of the UP-NS merger application

Union Pacific had initially believed that approval could involve concessions worth about $750 million. But Vena said that figure became lower as the first application was nearing completion last fall.

“Is it zero? No, it’s not,” Vena says. “But it’s not $750 million.”

Even so, the merger agreement still includes a $750 million threshold. That threshold would trigger a review of whether the transaction remained worthwhile.

Vena said Union Pacific would be prepared to leave the deal behind. That would apply if the conditions attached to approval made it unacceptable.

“This deal has to be better for the company, for Union Pacific, has to be able to grow the business, and has to be better for our investors,” Vena says. “If it isn’t, we’re pretty good as a standalone company, and I’m not worried about walking away from it.”

The agreement says Union Pacific would cancel the transaction if federal regulators required broad trackage rights or ordered line sales. One possible exception involves the Kansas City-St. Louis corridor. If the merger is cleared, Union Pacific would have two routes between those cities: its former Missouri Pacific line through Jefferson City, Mo., and Norfolk Southern’s former Wabash route through Moberly, Mo.

Union Pacific is discussing a possible divestiture of one Kansas City-St. Louis route, Vena said.

“We’ll work through the process, and we’re talking to a number of people to be able to get that done,” Vena says of the potential divestiture of a K.C.-St. Louis route. “But those things are complicated. It takes a while to get them done.”

TRRA ownership remains part of the revised filing

The revised filing also addresses the Terminal Railroad Association of St. Louis. Its owners include Union Pacific, Norfolk Southern, BNSF, Canadian National, and CSX. The issue is how Union Pacific would avoid gaining control of the switching railroad after a merger.

Other Class I railroads have criticized Union Pacific for not giving enough detail on how it would divest a portion of its ownership. BNSF, CSX, and Canadian National have argued that the revised application remains incomplete because it does not include a request for control of TRRA.

Union Pacific and Norfolk Southern responded that the revised filing differs from the first version. The updated application no longer makes divestiture of Norfolk Southern’s TRRA share dependent on whether the other owners are willing to pay fair market value. Instead, it asks the STB to make divestiture a condition of merger approval, “thereby ensuring the Applicants could not acquire control of TRRA, even temporarily.”

“We will make sure that we will not get to 50% ownership,” Vena says. “So either turn back shares or turn them into nonvoting shares, whatever we need to do.”

According to Vena, Union Pacific called a special TRRA board meeting after rival railroads objected to how the original merger application addressed the disposition of the UP interest in the switching railroad.

“We actually called the special meeting of the board for the TRRA and asked all the railroads to come in so that we could talk about how we could dispose of our shares or the NS shares when we close on the deal,” he says. “I hate to tell you, nobody showed up even though they were supposed to.”

Vena described the objections to the revised application as “noise” from competitors.

“It sort of tells you about our competition,” Vena says.

Vena says the deal meets STB standards

Other Class I railroads have argued that the Union Pacific-Norfolk Southern merger would fail the STB’s two main review tests. Those tests are serving the public interest and enhancing competition.

Vena said the transaction satisfies both standards. He said the combined railroad would move freight off highways. It would also broaden the single-line service options preferred by shippers. In addition, he said it would lower shipping costs through single-line rates and improve equipment turn times.

He also said the efficiencies and service gains from the merger would pressure other railroads to compete on price.

The STB is expected to decide by the end of next week whether the revised Union Pacific-Norfolk Southern application is complete.

Vena made the comments during the 19th annual Wolfe Research Global Transportation and Industrials Conference.

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