Two railroad giants attempting to merge found their $85 billion consolidation plan stalled when regulators deemed their application materials insufficient. The Surface Transportation Board (STB) recently declared Union Pacific (UP) and Norfolk Southern's (NS) high-profile merger application incomplete, casting doubt on the ambitious rail integration proposal.
STB's "Incomplete" Ruling: What Went Wrong?
The STB's decision doesn't reject the merger outright but focuses on application deficiencies. Specifically, regulators identified three critical shortcomings:
- Insufficient Market Impact Analysis: The application lacked comprehensive future market share projections post-merger, providing only 2023 data. STB emphasized that such forecasts are vital to assess potential competitive impacts from traffic shifts and market changes.
- Missing Merger Documentation: Regulators required complete merger agreements and all transaction-related contracts for thorough evaluation.
- Understated Control Assessment: STB determined UP and NS's request for control of the St. Louis Terminal Railroad Association constitutes a major transaction requiring heightened scrutiny, contrary to the applicants' characterization as minor.
Market Share Projections: The Linchpin of Merger Evaluation
STB particularly stressed the importance of detailed market share forecasts. Regulations mandate that applications include both current and projected post-merger market shares by revenue and freight volume. These metrics must clearly demonstrate competitive impacts and anticipated market changes. The regulators noted UP and NS failed this requirement by omitting future projections beyond 2023 baseline data.
In its ruling, STB explicitly stated that applicants must model post-merger market conditions because all rail consolidations risk creating entities with enhanced market power. Without these projections, regulators cannot properly assess competitive consequences.
Next Steps: Revised Applications and Timeline Adjustments
The STB ruling permits UP and NS to amend their application, requiring them to submit a timeline by February 17 for resubmission. Analysts anticipate this will delay the final decision:
TD Cowen's Jason Seidl noted the ruling aligns with prior market analyses identifying gaps in the initial filing. While expecting UP to expedite revisions, Seidl acknowledged additional analysis could push the final STB decision from late 2027 Q1 to early Q2.
Rail analyst Tony Hatch characterized the ruling not as rejection but as "pre-fight weigh-in," suggesting STB responded to complainant concerns about missing information while reserving judgment on competitive enhancement claims. Hatch emphasized the importance of thoroughness over speed for this multibillion-dollar consolidation.
Competitor Concerns: Transparency and Competition Questions
Prior to STB's decision, rival Class I railroads BNSF and Canadian National (CN) filed motions demanding greater disclosure from UP and NS:
CN accused the applicants of opacity regarding potential competitive harms, with Chief Legal Officer Olivier Chouc insisting merger parties must meet "the highest standards of transparency" given the transaction's scale and stakes.
BNSF argued the merger would "irreversibly reshape" U.S. rail transportation for decades, criticizing UP and NS for withholding internal analyses about potential service reductions, rate increases, and integration risks while blocking access to board materials and banker presentations that might reveal their true competitive assessments.
Merger Prospects: Balancing Challenges and Potential Benefits
The UP-NS merger aims to create a coast-to-coast rail network promising operational efficiencies and improved customer service. However, STB's rigorous review process and competitor objections demonstrate significant regulatory hurdles.
For the merger to advance, applicants must now provide robust market analyses, demonstrate competitive benefits outweigh risks, and address stakeholder concerns about public interest impacts. Success could reshape North American rail transportation, while failure might preserve the current competitive landscape.