North American Railroads: Merger Discretion Advised: First Clear Sign of STB Skepticism Heading Into Review on the Merits

On Friday evening, the Surface Transportation Board (STB) issued a relatively short decision denying the motions seeking to dismiss the UP/NS merger application, which was the base case outlined in our most recent industry update. The concurring decision by the newest Board Member, Richard Kloster, implies that the motions from competing railroads, a large shipper group, labor unions, and seven state attorneys general raised doubts as to whether or not the Applicants had made a prima facie case. Kloster questioned the Applicants' strategy of incremental submissions and whether truckload conversion can be counted as a merger benefit — noting the Applicants rely heavily on benefits to intermodal shipments, a segment already competitive by today's standards. This is the first direct indication that the $3.5B of annualized truckload conversion benefits projected by the Applicants could be discounted by the Board. The Board exercised its broad discretion to allow the proceedings to continue