BNSF: New UP-CN deal ‘undermines’ case for merger

BNSF says Union Pacific’s agreement with Canadian National for the latter to support UP’s merger with Norfolk Southern does nothing to improve rail competition as required by federal rules.

The agreement between Union Pacific that trades access in exchange for Canadian National dropping its opposition to UP’s merger with Norfolk Southern doesn’t change the anti-competitive aspects of the transcontinental consolidation, UP’s western competitor says.

Union Pacific’s agreement with Canadian National that trades increased access in exchange for CN dropping its opposition to UP’s acquisition of Norfolk Southern won’t change the negative competitive calculus of the transcontinental merger, western rail giant BNSF (NYSE: BRK-B) said.

Wednesday’s announcement “does nothing to change the fact that this merger doesn’t enhance competition and would leave thousands of rail customers with fewer competitive options and a single railroad controlling roughly 50% of the market,” said Zak Andersen, BNSF chief of staff and vice president of communication, in a statement Thursday.

CN (NYSE: CNI) on Wednesday said that it won’t oppose the merger in exchange for better access to the U. S. Midwest and Mexico. UP (NYSE UNP) also gets operating rights to CN’s route around Chicago to the East Coast. BNSF said that the agreement actually underscores the benefits of traditional rail link-ups UP has said it can’t achieve without a merger.

“UP’s agreement with CN undermines one of the core arguments for the merger,” Andersen said. “For a year, UP has claimed that partnerships cannot deliver the benefits it says this transaction would create. Yet the CN agreement closely resembles partnerships that BNSF and other Class I railroads have successfully operated for decades.”

Opponents of UP-NS say it fails to meet the Surface Transportation Board’s rules that require a merger to enhance competition. “UP is required to demonstrate that the benefits it claims can only be achieved through a merger. Its own agreement with CN shows the opposite,” Andersen said.

“The benefits UP highlights can be pursued today without a merger, and significant portions of the arrangement are not even contingent on merger approval.”

The deal also led some observers to speculate that the the CN agreement could be the first in a series of compromises negotiated by UP with large shippers and other stakeholders to swing more support for the merger. Evaluation of the merger won’t start until UP and NS file additional information requested bv the STB by July 27.

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