OMAHA, Neb. (AP) — Union Pacific hopes regulators will be convinced this time that its $85 billion acquisition of Norfolk Southern that it detailed for the second time Thursday will be good for the country.
The U.S. Surface Transportation Board rejected Union Pacific’s initial application as incomplete in January because regulators wanted more details about how the deal would affect the competitive balance between the five remaining major freight railroads and the impact on customers. The STB has 30 days to decide whether to accept this application, and then it will move forward into its detailed review of the deal that will likely last more than a year.
Union Pacific CEO Jim Vena said the new application makes an even stronger case for the benefits of the merger that he believes would shave a day or two off the delivery time for many shipments because they would no longer have to be handed off between two railroads in the middle of the country. The Omaha, Nebraska-based railroad projects that the merger could lead to shifting 2.1 million truckloads off the highway onto trains, and doing that could save shippers $3.5 billion because over long distances, rail is cheaper than trucking.
Critics that include some current major rail shippers like chemical companies and agricultural groups and two of the major competing railroads worry that the shipping rates existing customers pay could soar if Union Pacific gains monopoly power all across the country. Competitors BNSF and CPKC railroads joined a new coalition Wednesday to highlight concerns that the deal could hurt shippers and eventually consumers if it leads to higher rates for companies that have few options besides rail to get their raw materials and deliver their products.
But Vena said CSX and BNSF are already improving their operations to ensure they can compete ,and shippers will benefit from that if the deal is approved. Plus, he pointed out that since BNSF is owned by Warren Buffett’s Berkshire Hathaway it has the financial resources to do whatever is needed because Berkshire is sitting on nearly $400 billion cash.
“The first few years after this, it’s gonna be like one of those old 15-round boxing fights. Prices are gonna be used, the service is going to be used, everything. And I think the customer’s going to be the winner in all this while we knock down, drag it out, to see who can win and grow their market share,” Vena said.
But the STB established a high bar for major railroad mergers like this one around the turn of the century after past rail mergers snarled freight and led to prolonged disruptions while two railroads worked to integrate their networks. Now Union Pacific has to demonstrate that this deal will enhance competition.
Vena said he’s confident the railroads can avoid the integration problems of past mergers because they will take it slow while listening to a new board of customers about the impact. Plus this would be a combination of two successful railroads instead of many deals of the past where one thriving railroad took over another nearly bankrupt one in disrepair.
The deal includes a provision that if the STB requires more than $750 million in concessions Union Pacific can consider walking away, but it won’t automatically doom the deal, the railroads disclosed Thursday as they submitted a copy of their merger agreement. Norfolk Southern would be entitled to a $2.5 billion breakup fee if the deal falls apart.
Currently, Norfolk Southern and CSX serve the eastern U.S. while Union Pacific and BNSF serve the west, and the two major Canadian rails compete where they can with their tracks crossing Canada and extending into the United States and Mexico.
A merged Union Pacific would likely control nearly 40% of the nation’s freight, but the railroad said that currently BNSF delivers that much of the nation’s freight. So the railroads said the deal would shift which railroad dominates the market but wouldn’t dramatically change the competitive balance.
Several trade groups have joined with the unions that represent engineers and track maintenance workers and the other railroads to raise concerns about the deal.
“This did not begin with a customer asking for a UP-NS merger to happen,” BNSF CEO Katie Farmer said. “It’s driven by Wall Street on the promise of a big shareholder payout. It will eliminate competition, raise costs for consumers, and destabilize the supply chain that powers the American economy.”
But the biggest rail union and hundreds of shippers have backed the deal that would cut the number of major freight railroads across America down to five.
Union Pacific has promised that every union employee who has a job with either railroad at the time of the merger will have a job for life although the workforce could still shrink through attrition if the number of shipments slows down. But UP sounded an optimistic note Thursday and predicted that more than 1,200 new jobs will be created by the third year after the deal to handle the increased freight.
Previously, the railroads predicted 900 new jobs. But the new traffic data the railroads analyzed from all the major freight railroads convinced executives that more job growth is likely.
Union Pacific also said it will ensure that the merged railroad will never control more than 50% of the Terminal Railroad Association of St. Louis after competitors questioned that. Currently, UP owns nearly 43% of that railroad that operates 170 miles of track and two bridges over the Mississippi River, and Norfolk Southern owns more than 14%. Previously, Union Pacific had suggested temporarily becoming the majority owner of that railroad as part of the transition after the merger.
.
