Union Pacific and Norfolk Southern said Thursday that their proposed combination has met the Surface Transportation Board's threshold requirements, urging regulators to reject opponents' preliminary challenges and move ahead with a full review of the transaction.

In a response filing, the railroads said their application contains extensive evidence developed over months of work and gives the STB sufficient information to determine that the merger is consistent with the public interest. The companies characterized the opposition's challenges as attempts to derail the transaction before the board can fully evaluate its proposed benefits.

The filing follows the STB's Aug. 18 issuance of a procedural schedule for the merger proceeding. That schedule moves the application into the next phase of regulatory review and sets deadlines for public comments, evidentiary filings and the board's evaluation of the proposed combination.

"We've more than cleared the threshold to move review of this transaction forward, and opponents' efforts to kill the deal do not change the facts," Union Pacific (NYSE: UNP) Chief Executive Jim Vena said in a statement.

Vena said the companies had submitted what he described as an unprecedented volume of evidence demonstrating that the merger would benefit employees, customers and the broader U.S. economy.

The counter-filing comes as a growing coalition of elected officials, state attorneys general, and shippers voice concerns over the transcontinental tie-up. If approved, the deal would unite the two largest U.S. railroads by revenue and produce the first transcontinental freight railroad in the United States, a combination that has never existed in the modern regulatory era. No major U.S. Class I railroad merger has been completed since the STB tightened its merger rules in 2001, after the service disruptions that followed the 1996 Union Pacific–Southern Pacific and 1999 split of Conrail between Norfolk Southern and CSX.

According to the railroads, the combined company would create a more efficient single-line network, improve service for agricultural and industrial customers, strengthen competition and shift freight from highways to rail.

Norfolk Southern (NYSE: NSC) President and CEO Mark George said the proposed merger is intended to support growth in the rail sector while improving affordability for shippers and consumers.

"Our application clearly shows this merger is about growth," George said. "While delivering great public benefits, including better affordability for shippers and, ultimately, consumers."

George also pointed to the companies' proposal to guarantee unionized employees jobs for life and to create additional positions as demand and service levels expand. He said combining the two networks would help reverse rail's loss of freight share to trucking while creating new opportunities for employees, customers and communities.

Union Pacific and Norfolk Southern said their application identifies several measurable benefits from the proposed combination:

• New, faster single-line service opportunities across more than 88,000 county-to-county lanes
• Expanded single-line service across 10,000 existing lanes
• Supply-chain reductions of 24 to 48 hours on affected movements
• Approximately $1 billion in annual operating savings for the combined railroad
• Approximately $3.5 billion in annual savings for customers that shift freight from truck to rail
• Diversion of 2.1 million truckloads to rail, reducing highway congestion and emissions while improving driver safety

The companies said the combined railroad would be positioned to provide more efficient service across a broader network, particularly for freight that currently requires an interchange between the two systems or involves multiple rail carriers.

The application also includes commitments intended to address potential competitive concerns. Among them are an Open Gateway Commitment modeled on conditions adopted by the STB in recent railroad merger proceedings, Committed Gateway Pricing, and new access rights for Canadian National Railway (NYSE: CNI) between St. Louis and Kansas City.

Union Pacific and Norfolk Southern also submitted an analysis of potential competitive effects and a Service Assurance Plan intended to protect customers during the merger's implementation.

The STB's prima facie review examines whether a merger application contains enough evidence to support a finding that the transaction is consistent with the public interest. Union Pacific and Norfolk Southern said their filing exceeds that standard and provides compelling evidence of benefits for shippers, employees and communities. Under the board's 2001 rules, major railroad mergers must be shown to enhance competition — not merely preserve it — a stricter standard than earlier merger reviews applied.

The board's procedural schedule will now govern the next stages of the review, including additional filings and public participation, before the STB evaluates the proposed combination on its merits. A decision is expected in late 2027.

Source: FreightWaves