Why the STB Hit the ‘Reset’ Button on the UP-NS Merger

by Jim Mathews / President & CEO

Late Friday, the Surface Transportation Board rejected Union Pacific’s application to acquire Norfolk Southern. That headline alone has already led to a lot of speculation — about politics, about timing, about whether the Board is “for” or “against” large rail mergers.

The reality is both more technical and more consequential.

This was not a ruling on the merits of the merger. The Board didn’t say the transaction is good or bad, pro-competitive or anti-competitive. What it did say, very clearly, is that the application as filed did not meet the Board’s basic requirements for completeness, and that under federal law, an incomplete application must be rejected.

Even so, laced throughout the language in this procedural decision is a very important message about how STB will evaluate this, or any future, Class I merger.

Remember, at this stage of the proceeding neither the arguments nor the STB’s ruling was supposed to be about the merits of the deal. This decision was about completeness, not outcome.

The Board identified three independent reasons the application could not proceed:

1. The applicants did not provide forward-looking market share projections, even though they repeatedly claimed the merger would lead to substantial traffic growth over several years.
2. The applicants did not submit the complete merger agreement, including key schedules that define how much regulatory burden Union Pacific is willing to accept before it can walk away from the deal.
3. A related application involving control of the Terminal Railroad Association of St. Louis was misclassified, which by itself made the broader filing incomplete.

Any one of these would have been enough to stop the clock. Together, they left the Board with no discretion under the statute.

One of the most important, and maybe most misunderstood, parts of the decision concerns market share analysis. The applicants argued that their competitive impacts could be evaluated by simply adding together Union Pacific’s and Norfolk Southern’s existing market shares. The Board disagreed.

Why? Because elsewhere in the application, the railroads made very different claims: that the merger would divert traffic from trucks and other railroads, that volumes would grow substantially, and that it would take several years after the merger closes for those effects to fully materialize.
You can’t have it both ways.

If a merger is expected to change traffic flows, market power, and competitive dynamics over time, the Board says the analysis has to look forward and not just stop at the moment the ink dries. The Board was explicit that concerns about complexity or future disputes are not a reason to avoid that analysis. In major mergers, that work is required up front.

That is not a new rule. But it is a firm reminder that the rule will be enforced.

The second major issue, the missing schedules to the merger agreement, has attracted less public attention, but it may be just as important.

Among the documents not filed was a schedule that defines what the companies consider a “materially burdensome regulatory condition.” In plain English, it helps determine which conditions imposed by regulators could cause Union Pacific to abandon the deal altogether.

The Board didn’t accuse the applicants of bad faith...and that would have been both astonishing and unusual if it did. But it did note, pointedly, that these documents were required by regulation, that they were already the subject of discovery disputes, and that the applicants did not even attempt to justify their omission when they filed.

For a transaction this large and this consequential, the Board made clear that summaries are not enough. Regulators, stakeholders, and yes, passenger-rail advocates, are entitled to see the actual deal terms, subject to confidentiality protections if necessary.

Now, it’s just as important to be clear about what the Board did not say. It didn’t say or even telegraph that the merger will ultimately be rejected. It didn’t say large rail mergers are off the table (even though the underpinning logic of the 2001 Major Merger Rules is that the bias is toward skepticism about new major mergers). And it didn’t say Union Pacific or Norfolk Southern acted unlawfully or deceptively. The Board explicitly left the door open for a revised application and stated that its rejection should not be read as a preview of how it might rule on the merits later. STB set the deadline for mid-summer, which is very helpful for all of us as advocates to give us time for deeper analysis.

So, why does all this matter? Especially for passenger rail? One of the clearest through lines in the Board’s reasoning in this Jan. 16 decision is its insistence on demonstration, not aspiration. The Board didn’t reject the application because it doubted that Union Pacific and Norfolk Southern intend to grow traffic or deliver benefits. It rejected the application because those claims were not backed by the kind of forward-looking analysis the rules require.

That distinction matters for passenger rail.

In the application, the railroads made broad assurances that they would continue to meet their existing contractual obligations to Amtrak. At the same time, they projected the addition of nine, ten, or even twelve new freight trains per day in certain corridors—often in places where passenger operators have been told that adding even a single new train would require enormous upfront capital payments.

Remember the $1 billion price tag originally offered for starting what became the Mardi Gras? Passenger-rail advocates have lived with this tension for years: promises of cooperation on one page, claims of capacity scarcity on the next.

What this ruling suggests, without yet deciding, is that the Board is laser-focused on whether claimed outcomes are supported by evidence, not merely stated as commitments. If applicants must demonstrate, with data and projections, how freight markets will function after a merger, it’s reasonable to expect that the same level of rigor might be applied to passenger-rail impacts during the merits phase of this proceeding.

That wouldn’t require new law or new rules. The Board’s existing regulations already require applicants to show how they will protect passenger services and meet public-interest obligations. What may be changing is how seriously the Board expects applicants to prove those claims — especially when they sit alongside ambitious freight growth projections.

For passenger rail, that could be consequential. It creates space for a simple but powerful question during the merits phase: “If the merged railroad can accommodate significant new freight growth, what does that imply about its capacity claims when passenger rail seeks modest service expansions?”

The Board hasn’t answered that question yet. A few cases that might have shed some light on that wound up getting settled outside the proceedings so we never got that substantive ruling. But by insisting on proof rather than promises at the threshold stage, it has made clear that unsupported assurances, of any kind, are unlikely to carry the day. At this stage, I’ll take that as a win.