Union Pacific and Norfolk Southern got what they wanted, now federal rail regulators want what they have asked for.
The Surface Transportation Board on Thursday avoided what would have been an historic first – a second rejection of a merger application – which more than likely would have raised serious questions about the viability of the deal to create the first transcontinental railroad.
The markets made their displeasure known, slapping UP (NYSE: UNP) and NS (NYSE: NSC) on their collective wrists to the tune of around $7.5 billion in lost capitalization, or close to 10% of the estimated $85 billion value of the deal. Hey, everything’s more expensive these days.
But a rejection also could have stirred blowback from President Trump, who blessed the merger in an Oval Office meeting with UP CEO Jim Vena in 2025, and last week in an interview mused about the federal government possibly taking an ownership stake in the consolidated entity. The STB and Chairman Patrick Fuchs clearly didn’t want that smoke.
So the regulator asked the railroads to submit more information across a range of issues by July 27, delaying the start of formal evaluation until that time. But where the application is concerned, a baseball that’s 99% foul is still 100% fair.
To this point, for Vena and NS CEO Mark George, navigating the transcontinental two-step has been like trying to stuff an elephant through the eye of a needle. Vena has said that he doesn’t want to give away too much proprietary information about business plans to rival railroads but at the same time, this is unmapped territory for all concerned. No one’s tested the STB’s tougher rules laid down after the chaotic mergers of the Nineties; it’s not even clear how they apply in a radically changed business environment a quarter-century later. And, Vena for sure doesn’t want to give competing Class I carriers a playbook for the mergers sure to follow, which could hollow-out any gains UP and NS are going to great pains to carve out.
Railroading is a close-knit business that rightly takes pride in the fact that even 175 years after turning the first wheel on this continent, it’s the industry that helped make America into a global economic colossus. So, there’s a lot of chatter and a lot of casual talk surrounding the merger as people seek out clues to the merger’s end result.
In April I reported something I was told by one of the biggest suppliers in the business, and I’ll repeat it here: This supplier had been planning for months in expectation that NS would sell off or otherwise divest 15,000 miles of track, mostly to major short line and regional operators. That’s a suprising number as the entire NS network totals 29,000 miles. UP and NS have both denied this, but I assure you, this supplier is closely tied to the Class Is and is unlikely to make up that kind of number out of thin air.
Make no mistake, UP-NS will be the most thoroughly analyzed merger in the history of transportation, and maybe of business. Fuchs co-authored the most recent surface transportation bill and knows transportation inside and out. The STB collected 120 million separate data points before the application was even filed, including years of traffic statistics, and brought on specialists from MIT to help crunch the numbers.
One thing stakeholders agree on is that UP and NS will have to give to get, that is, whatever they’re offering in the application are just table stakes before the STB gets down to brass tacks. In a deal of this magnitude, outside of the principles, there are three types of participants: those who want to maintain the status quo; those seeking significant concessions; and others who just want to get paid.
The train gets a-rolling July 27.
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Read more articles by Stuart Chirls here.
Related coverage:
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