The proposed $85 billion merger between Union Pacific (UP) and Norfolk Southern (NS), which could reshape the North American rail industry, has hit a regulatory hurdle as the Surface Transportation Board (STB) declared the companies' application materials "incomplete."
The potential combination of these two rail giants would create a transportation network spanning the U.S. from coast to coast, promising customers expanded service options, improved efficiency, and potentially more competitive pricing. However, the path to regulatory approval remains uncertain.
STB's "Incomplete" Ruling: A Regulatory Reality Check
The STB, in its December review, identified several deficiencies in the merger application. The regulatory body emphasized that the submission lacked required comprehensive system impact analyses, including detailed market share projections that account for post-merger growth and traffic diversions.
"The application only provided a simple summation of UP and NS's 2023 market shares without forward-looking projections that would reflect the combined entity's anticipated growth and market conditions," the STB noted in its decision.
Key Application Deficiencies
The STB highlighted three primary concerns:
1. Market Share Projections: The application failed to provide predictive market share analysis beyond the transaction completion date, a requirement for assessing potential anti-competitive effects.
2. St. Louis Terminal Control: The STB determined that UP and NS's request for control of the Terminal Railroad Association of St. Louis should be classified as a "major transaction" rather than the "minor transaction" designation proposed by the railroads.
3. Technical Compliance Issues: Several procedural requirements were not fully met in the initial submission.
Industry Reactions and Analyst Perspectives
TD Cowen analyst Jason Seidl observed that the STB's decision aligns with prior indications that the application lacked critical details. "We expect UP to work diligently on revisions, but acknowledge this setback requires additional analysis," Seidl wrote in a research note.
Competitor Concerns Surface
Prior to the STB's decision, competing Class I railroads BNSF and Canadian National (CN) filed motions urging the board to demand more complete disclosure from the merging parties.
CN's Chief Legal Officer Olivier Chouc stated: "Given the proposed merger's scale and stakes, applicants must meet the highest standards of transparency. They shouldn't hide behind legal arguments but welcome transparent discussion about competitive impacts."
BNSF argued in its filing that the transaction would "irreversibly alter U.S. railroading for decades," while expressing concern that UP and NS were avoiding fundamental disclosure obligations.
Next Steps in the Regulatory Process
The STB has given the railroads until February 17 to submit a timeline for filing a revised application. While the incomplete designation represents a setback, the regulatory process remains ongoing, with analysts now predicting a final decision may not come until 2027.
The merging parties must now address the STB's concerns by providing more detailed market analyses, properly classifying the St. Louis terminal transaction, and correcting technical deficiencies before resubmitting their application.