CN CEO says UP-NS merger application has a ‘long way to go’

MONTREAL — Union Pacific and Norfolk Southern have “a long way to go” to address issues with their merger application, Canadian National CEO Tracy Robinson said during the company’s quarterly earnings call today (Friday, Jan. 30).

“It is not at all clear that the transaction as proposed addresses many of the questions around the negative impact on competition, as well as the bigger issue of increasing rail competition,” Robinson said as part of her opening remarks. “The concessions required to achieve this will be significant. This should be the focus as UP and NS prepare their refiling. And we’re eager to see how they’ll address these issues in their revised application. I’d say they’ve got a long way to go.”

Responding to a subsequent question, she said the initial application falls “considerably short” in addressing how it increases rail competition, and “portrays the merger as a complete end-to-end in spite of pretty obvious areas of overlap. …

“They didn’t give us the projected market share of the new entity, and therefore how big it would be in the potential harm that would come from market power. So these are only examples, that they suggest the gap in assessments of harm.

“And as importantly, I think, it failed to propose conditions that would adequately preserve competition, and it said nothing on how it’s going enhance competition, save an open gateway model that I think has been proven not to work, and a gateway commitment that applies to by our assessment to just a very small fraction of the impacted traffic and not at all [to] the Canadian railways. And it expires with a merged entity, and of course its impacts are permanent.”

There needs to be more information, she said, to fully understand the impact on shippers, which in turn would lead to “a much more substantive portfolio of concessions to mitigate those impacts if we are held to the STB’s new rules.

Based on the available information, she said, “there will be an impact to competitive access for our customers and for our business. Now our assessment would suggest that the impact on CN will be less than that of the other road, but it won’t be zero. And so, if this merger is to proceed, we intend to rigorously pursue concessions that will protect and improve competition.”

Robinson also explained why the company has brought in outside advisors to help evaluate the merger and potential future consolidation.

“It’s an industry-changing deal and I think it’s inherent upon all of us who are going to participate that we understand the detail, and there is a great level of detail that we’re going to be looking at on how this is going to impact the industry,” she said. “Where I think I would expect most or all of us to bring in an expert, [it’s] let’s make sure we do that in a way that isn’t disrupting how we run the day-to-day business. Most, if not nearly all, of this organization needs to be focused on delivering for our customers every day. … And so we have important and trusted advisors that we bring to bear on this.”

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