UP-NS say revised merger application is ‘comprehensive and complete’

Union Pacific and Norfolk Southern defended the completeness of their revised merger application in a filing with the Surface Transportation Board, saying it is “comprehensive and complete” while rebutting comments that called for the board to reject the amended application.

The UP-NS response filed Tuesday addresses the three areas that caused the board to reject the initial application as incomplete – a lack of market-share data, which they say now uses “the best information available regarding merger-related changes in traffic;” the status of the Terminal Railroad Association of St.

Louis, which they say that have “unambiguously and unconditionally” indicated they will not seek to control; and all documents related to the merger agreement.

In rejecting the original application as incomplete, the board cited the railroads’ failure to include the complete merger agreement, specifically a section on terms that would allow UP (NYSE: UNP) to walk away from the transaction. That portion of the agreement was included in the revised application filed on April 30.

The board has until May 30 to determine whether to accept the revised application or again reject it as incomplete. Recent history shows that a merger application has never been rejected twice.

A substantial portion of the UP-NS response – more than 13 of the 46 pages – is devoted to the two railroads’ explanation why they believe they have fulfilled the requirement to provide market-share data, and relies largely on an explanation of the processes their three outside experts used to develop the information in the revised application.

Part of this discussion addresses CPKC (NYSE: CP) concerns over the way the market-share data is presented, and notes that “the level of detail and aggregation did not materially change from the original application.

No party objected to that presentation format during the first round of comments, and the Board likewise did not identify any defect in the structure, aggregation, or organization of the analyses.”

That the board did not previously cite a topic as a completeness issue is a recurring theme of the UP-NS (NYSE: NSC) filing, used to respond wholly or in part to a number of the issues raised in comments on the revised application.

This includes addressing questions over control of the Kansas City Terminal Railway, raised by BNSF (NYSE: BRK-B) and CPKC; control of railcar pooling organization TTX, brought up by BNSF; identification of shippers that would be served by two railroads instead of three, or one instead of two; and downstream effects of a UP-NS merger, including possible future Class I mergers.

Regarding the latter issue, the UP-NS filing says, “BNSF, CN (NYSE CNI), CPKC, and CSX (NASDAQ: CSX) obviously know more about the potential downstream effects of a UP/NS merger on mergers of other Class I railroads than the Applicants, and they are free to share those positions with the Board during the merits phase of this proceeding.”

Comments from BNSF, CSX, and CN all argued that the revised application is incomplete because it does not include an application for control of the TRRA, the St. Louis-area switching line jointly owned by UP, NS, and three other Class I railroads.

The UP-NS response is that, unlike the original application, the revised version does not make divestiture of the NS share of the TRRA contingent on the other owners’ willingness to pay fair market value.

Instead, the new application asks the board to make divestiture a condition of merger approval, “thereby ensuring the Applicants could not acquire control of TRRA, even temporarily.”

The Tuesday filing also argues that several objections presented by other railroads, as well as by the National Grain and Feed Association, are matters addressing the merits of the merger, not the completeness of the application, and therefore can be addressed in the next phase of the review process.

UP and NS also responded to concern by the New York Department of Transportation and New Jersey’s NJ Transit that the application did not address operations on lines featuring Amtrak or commuter rail operations.

In each case, UP and NS say that while NS operates on the lines in question, they are owned or dispatched by other entities (CSX, Conrail, or NJ Transit) and therefore do not fall under the requirement that the application address impacts “where passenger services are operated over the lines of applicant carriers.”

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