Regulators Are Right to Demand Transparency on UP–NS Merger

Rail transportation is the backbone of the American economy, and a proposed $85 billion merger threatens to concentrate market power in an already highly consolidated industry in the hands of Union Pacific and Norfolk Southern. The consequences will ripple across the economy, raising transportation costs, weakening service, and squeezing industries that depend on rail, from agriculture to energy.

At a moment like this, regulators shouldn’t take merger parties at their word. They should demand evidence. That’s exactly what we have called for when it comes to evaluating this mega merger and we are pleased the U.S. Department of Justice and the Surface Transportation Board have agreed.

The Justice Department – in a notable recommendation consistent with their review of mergers outside the rail industry and recognizing the “heightened ‘enhanced competition’ standard” that applies to this merger – urged the STB to require that Union Pacific and Norfolk Southern produce certain executive-level information regarding their internal assessments of the merger.  The STB took an important step in that direction on March 18, requiring Union Pacific and Norfolk Southern to turn over internal documents assessing how the deal would affect competition, pricing, and market dynamics, as well as internal documents evaluating synergies or efficiencies from the transaction. These are the same kinds of materials the Justice Department has long relied on to evaluate mergers because they reveal how companies themselves expect a transaction to play out.

That matters here. From the outset, attorneys general across the country have warned that this merger could further entrench consolidation in freight rail, reducing competitive options for shippers, ultimately increasing costs for businesses and raising prices for consumers.

The merging companies insist otherwise. They point to a limited “open gateway” commitment as proof that competition will be preserved. But Union Pacific itself dismissed similar promises in the recent (and much smaller) Canadian Pacific / Kansas City Southern rail merger in 2023, calling arbitration over gateway rates “illusory.” Now it asks regulators to accept vague assurances it will maintain open gateways at “commercially reasonable” terms without enforceable guarantees.

That isn’t a safeguard. It’s a talking point.

The claimed benefits of the deal deserve equal scrutiny. Union Pacific argues the merger will drive growth, including taking two million trucks off the road by shifting their freight to rail. But this isn’t a binding commitment; rather, it is an optimistic forecast that UP would face no repercussions from missing. Indeed, the recent CPKC rail merger has fallen well short of much more modest target of 65,000 truck-to-railway conversion. The companies also promise efficiencies and new investments but offer little detail about their pre-merger plans, or whether similar gains could be achieved through less anticompetitive means, such as partnerships or joint ventures – much less how any such efficiencies will benefit shippers, rather than the shareholders and executives of Union Pacific and Norfolk Southern.

In other words, regulators are being asked to accept sweeping claims with limited substantiation.

The STB is right to push back on the “just trust us” approach. Internal company analyses can reveal whether executives expect service disruptions, pricing power, or integration challenges that could undermine supply chains. They can also test whether the merger’s benefits are realistic, or simply aspirational.  This is especially true here, where the STB recognized in its recent Order that this will be the first transaction “to be assessed under the 2001 merger rules” that required enhanced competition and “given the proposed transaction’s size and significance for the rail transportation system.”

This level of scrutiny is basic due diligence, particularly in an industry where reduced competition can have economy-wide consequences, and especially when the merging railroads claim this transaction will change American railroading for the next hundred years.

At a time when businesses and consumers are still grappling with inflation, it’s hard to overstate the risks of this mega merger.

As this review proceeds, the Board should ensure that all stakeholders have the information needed to assess the merger’s true impact, and the time to be heard, resisting pressure to rubber stamp a deal this consequential for the rail industry and American consumers. Anything less risks locking in higher costs and fewer choices for years to come.

The American economy runs on rail. The Board should make sure it stays on track.

By Montana Attorney General Austin Knudsen, Kansas Attorney General Kris Kobach, Iowa Attorney General Brenna Bird, and North Dakota Attorney General Drew Wrigley