May 14, 2026
On May 14, The Capitol Forum held a conference call with Roger Nober, Director of the George Washington University Regulatory Studies Center and former Chair of the Surface Transportation Board, to discuss the proposed Union Pacific-Norfolk Southern rail merger and the regulatory, competitive, and political issues surrounding the transaction. The full transcript, which has been modified slightly for accuracy, can be found below.
JOSH KOSMAN: All right, great. Well, hello, and welcome. Welcome, people who are watching online, and welcome, Roger Nober.
I’m Josh Kosman. I’m a Senior Correspondent at The Capitol Forum. And we’re very pleased to be joined by Roger Nober, who has a very distinguished career in rail, and will talk to us about the proposed Union Pacific-Norfolk Southern merger. You’re right now a Professorial Lecturer at George Washington. And your past includes being the Chief Legal Officer and EVP at BNSF, as well as being the Chair of the Surface Transportation Board from 2002 to 2006.
One thing we want to be clear with people who are watching is, Roger, are you still doing work—and we talked about this before—at BNSF?
ROGER NOBER: I am. Since January, I’ve been doing some work with them. So, full disclosure, I am a consultant to them. Although, I promise that my opinions are my own.
JOSH KOSMAN: Sounds good.
ROGER NOBER: They were when I was at BNSF too.
JOSH KOSMAN: All right. That’s awesome. And certainly, being the former STB chair. And interestingly, being the first Chair, as we’ll talked about, after the agency promulgated the enhanced competition rules, which to me seems to be the key of whether this merger goes through or not.
Maybe a place to start is on April 30th, Union Pacific reapplied for the merger after getting rejected the first time. It’s a lot of pages to go through, but now it’s been a couple weeks. Roger, what do you think of the submission? What do you think is going to happen?
ROGER NOBER: Well, first of all, I want to thank you for having me. And I appreciate the opportunity to talk a little bit about rail regulation and rail mergers. What I would say at the beginning is, just to put it in context, a rail merger, unlike most major mergers, still goes through an independent agency, the Surface Transportation Board. Whereas, the average transportation merger would go through the Department of Justice. And the Department of Justice and the Federal Trade Commission split up different industry sectors and transportation is reviewed by Justice. The Congress has maintained rail merger oversight through the STB.
And to show old I am, back in the day, the original independent agency was the Interstate Commerce Commission, and the STB is a successor to that. And it was eliminated, so to speak, in the mid-1990s. And I was the lead House staffer on the bill to eliminate it and create the independent agency. And the reason it was kept as independent was to review rail mergers because they create a market concentration, or at least the feeling was, that really can’t be looked at through traditional antitrust principles that justice might.
So, that said, there were a number of rail mergers back in the 80s and 90s to consolidate the myriad of class one railroads at the time and create larger scale, more efficient operations. And starting in the late 90s, the first and then Chairman of the STB, Linda Morgan, felt that mergers needed to slow down. Ironically, Union Pacific was one of the leaders of opposing additional rail mergers—at the time, there was a proposal for Burlington Northern to merge with Canadian National and create what would be sort of a quasi-transcontinental railroad. And the agency put forward a merger moratorium in the late 90s and then spent two years redoing its rules to create the “new merger rules”—new, which were finalized and promulgated in 2001.
And so, the question really is—and they really created a more significant hurdle for rail mergers. And in the past, the measure that the agency would look at was were you preserving competition? And by that, they typically, meant railtorail competition. So, shippers who could only utilize rail. And the new merger rules put a standard in that said you had to enhance competition. But it left it a little flexible as to what exactly enhanced competition meant.
Now, I was going through the confirmation process a few months after that. And, in fact, I recently looked it up—I was asked about this at my confirmation hearing back in 2002. And I looked up my answer and it was—again, to the extent that anything that I said is dispositive—it said that there was a very high hurdle to a new merger. Although, it didn’t necessarily mandate that enhanced competition needed to be enhancing competition among rails. And we can talk a little bit about what that means.
So, really over the last 25 years, there had been no class one mergers. And interestingly, in the 2001 merger rules, there was an exception of the application of those to a transaction involving. at the time, the smallest class one, Kansas City Southern.
And back in 2000 and 2022, Canadian Pacific put in a bid to buy KCS and it was done under the old rules. There was a competing bid by Canadian National that was under the new rules and it was rejected. At least the initial step was rejected by the board under the new rules but accepted under the old rules. So, there’s a little bit of precedent that the new rules are more stringent.
Now you fast forward to 2025 and there had been some industry chatter about a merger. And really, the chatter was pretty soon confirmed by Union Pacific and Norfolk Southern. And they announced in the summer of 2025 they intended to merge. And then for the STB merger review to begin there’s a number of sort of technical steps that have to happen.
But the main one is you have to file an actual merger application, which has a large number of sort of regulatory requirements that be included in it—documentation, evaluations. And it has to show many of the—affirmatively—many of the requirements of the new merger rules, including enhancing competition, something called downstream effects, which is really in an industry with four carriers that control, in the United States, over 90 percent of the traffic—what would the impact of one merger be on the other carriers and what would they do in response? And we can talk about that a little bit as well—along with really estimates of what the rail traffic is going to be on the new merged carrier to guage its market power.
And so, originally, the application was filed on December 18th, of 2025, just before Christmas. And then the board has a process where interested parties can weigh in on whether the application is complete according to the rules. There were a number of parties that weighed in and said that the application was deficient in certain areas, particularly on its traffic analysis and how it treated a terminal railroad—which again is a term of art. We can talk about that in a little bit as well—and how it treated some of its merger agreement.
And 30 days later, the board didn’t accept it, which is not in and of itself a shocking development. It happens all the time that applications to the STB are not accepted for being incomplete and need to be supplemented. So, it’s not something that takes on great significance. But they’re sent back for supplement and more information. And that’s what happened here. The difference is the applications are usually minor and not Class 1 mergers.
UP, of course, said they were going to refile. They did, and they filed on April 30th. And that sort of brings us to where we are today, which is what’s in the application and how will the agency look at it at second time? And we are essentially 15 days out of the 30 that the agency has to look at it.
And last week, the other parties had to opine on whether they thought the application was correct. And there were a number of filings that suggested it wasn’t. UP filed their response on—I think it was Monday. And to no surprise, they suggested that it was in fact complete, and now it’s really up to the agency to decide. And so, that’s the procedural posture that we’re in.
JOSH KOSMAN: And what do you think, Roger? I mean, you’ve had a chance to review it. What is your take?
ROGER NOBER: I mean, I think that UP’s strategy throughout this has been to propose the minimum. And so, in the initial application, they proposed the minimum. They really had very little in the way of enhancing competition, and most felt that their program to enhance competition, competitive gateway pricing, was essentially maintaining competition. And they were very scant on the traffic data they showed and some of the technicalities that the econometric consultants looked at to estimate the market share and power of the new combined railroad.
In this revised one, they say they’ve corrected it. Other parties have looked at it and feel they haven’t. I initially would have said I couldn’t believe they would have submitted something that didn’t meet the test of completeness. But after reviewing the application and reading the other concerns, I now have questions. I don’t know whether the board will consider it complete.
JOSH KOSMAN: And how important, Roger, if they reject it a second time—there’s three members of the STB, two Republicans and a Dem. They unanimously rejected it the first time.
ROGER NOBER: Correct.
JOSH KOSMAN: If they were to reject it a second time, how important do you think it is they would reject it a second time?
ROGER NOBER: Well, there’s a lot of different ways to look at that, Josh. I’d say the first step, from a purely legal standpoint, they’d be in the same position they are now. Which is they could go back and look at what was missing and hopefully this time take it to heart and file it. But that’s from the legal, technical regulatory standpoint.
Mergers, though, are not just legal evaluations. They have a political component and they have a market component and they have a public component. And one of the real strengths of this merger had been the seeming momentum toward it, that UP had been very effective, over the summer and during the rest of 2025, of creating an aura of momentum behind their merger, that this was going to happen. And that sense of inevitability has a number of effects, which we can talk about in a minute.
But the main one is that when you have stakeholders—so shippers, public transit agencies, rail suppliers, the rail stakeholder ecosystem, if you will, to use an overused cliche—feeling that it’s going to be inevitable and the merged UP/NS is going to be somewhere in the neighborhood of 50 percent of the market, they’re going to be cautious about how much they’re going to want to complain. And a phrase that’s used often is poke the bear.
But if the aura of inevitability isn’t there anymore, and people feel that there’s a real chance the merger might not go forward, then that’s going to embolden the stakeholder ecosystem to raise issues with the transaction. And so, the real impact of application rejections is not so much the sort of legal delay, which is obviously a problem, but it’s going to create an aura that it’s not inevitable anymore. And that will bring more stakeholders out. It will bring more demands for concessions. And it will affect the shareholder and sort of financial base, which I’ve learned about in mergers there’s an entire world of traders who just trade on the speculation of whether mergers are going to go forward or not, the arbitrageurs, if you will, and trying to gain something from the spread and how they view this will, start to take on much more significance. And it’s sort of like each merger has its own sort of prediction market, if you will.
JOSH KOSMAN: No, no question. And when will they likely come out with their decision, whether to accept the application or not?
ROGER NOBER: I would say certainly in the next, call it two days, 14 to 15 days, 15 would be the maximum. And maybe it’ll come out a day or two before that, maybe it won’t. I’d say a wild card, Josh, is that one of the members is a potential new member, a Republican member, who just was at a package of nominations that went through cloture. And his name is Richard Kloster, Dick Kloster. And if he’s confirmed, he could be sworn in before the board votes on this. And then how the agency would deal with that, whether it would give him a chance to look at it or not or how that would go, is going to be up to the Chairman. And in my experience, STB Chairman Fuchs is somebody who’s extremely considerate of his fellow board members.
It’s an agency that really brings—it’s a throwback in terms of its collegiality and cooperation. Now, the members don’t always agree on things, but in terms of cooperating and working together and not being politically divisive, the agency really has—it stands out in that way. And so, I think Chairman Fuchs will be sensitive to that.
Now, what he does is going to be a function of things that are out of his control, right? Because he has a legal deadline to rule on the completeness of the application. And Dick Kloster’s nomination is at the hands of the Senate. And we all know that is impossible to predict.
JOSH KOSMAN: No question.
ROGER NOBER: I would also like to just note one more thing about the board, Josh.
JOSH KOSMAN: Of course.
ROGER NOBER: Which is that—and I’m not sure this is true, but I have heard this, and I have no reason to doubt it—that President Trump just this week re-nominated the Democratic member Karen Hedlund. And I have heard that she is the first Democratic member that this administration has appointed to any independent agency or Commission.
So, that’s notable about how people view the agency and its nonpartisanship. If that’s true, and even if it’s not true, it’s a real testament to Commissioner Hedlund, who’s somebody who I hold in the highest regard, and the board is a better place for her being there.
JOSH KOSMAN: Yeah, it’s interesting. And just because people, why would they necessarily know? You were appointed by President Bush. So, you were appointed by a Republican.
ROGER NOBER: Yes, I was. I was a Republican chairman. But interestingly, in the day, Linda Morgan, the Democratic Chairman under Clinton, was kept on for almost two years until I was confirmed as Chairman. And the Bush Administration did not name the sole Republican on the Board as Chairman when the administration took over. They waited for a new one to come on. Because, again, you don’t see typical partisan lines drawn in transportation in general and in transportation economic regulatory matters in particular.
JOSH KOSMAN: Well, there’s a lot that we want to cover in the next half an hour-ish, but let’s talk about enhanced competition. You were confirmed when this just became the rules. They really haven’t been tested, I believe, until now.
ROGER NOBER: Beyond the CN Voting Trust decision they have not been tested, no.
JOSH KOSMAN: So, you were mentioning that some believe that this merger would maintain competition, but perhaps not enhance competition. What do you see in the application? And do you think it answers the question of are you enhancing competition?
ROGER NOBER: So, it’s a really good question, and it’s kind of the question of the moment in the rail industry. So, you have to go back—and just, again, for context, say enhanced competition compared to what? And what kind of competition are you enhancing?
And typically, in rail mergers, there’s two kinds of rail traffic. There’s really large volume, heavy haul traffic that are things like coal, aggregate, chemicals, mining and minerals, steel that are—because of the nature of the supply chain, the size and the weight and the value of those commodities, and the inherent efficiency of steel wheels on steel rail—they are what are considered to be rail captive or rail dominant, market dominant, commodities, meaning that there isn’t really another way of moving them effectively. You have for unit trains of grain—so you have each rail boxcar is, call it three and a half or four trucks, and you can have 110 to 150 of those cars in one train. And so, think about that’s 400 trucks that would be driving grain or coal, and at the value of the grain and the cost of the trucks and the distance it would go, it just doesn’t make any sense.
So, there’s a regulatory scheme that looks at the economics of moving those kinds of commodities. And then there’s the other half, which are really manufactured goods that are typically, either manufactured in the U.S. or overseas and go in containers. And we call that intermodal. And the sort of key characteristic is they can go on a train or a truck. It doesn’t really matter. And most of the time, that’s what intermodal means. It goes between modes. So, it goes on both.
And so, when you say enhancing competition, typically, as a rail regulator, you’re concerned about the traffic that rails have, if you will, monopoly power over. The shippers don’t have a choice of carriers or modes. So, farmers, power plants, industrial facilities like refineries and chemical plants. And that’s where rail economic regulatory doctrines come in.
And so, when you say enhance competition and what does it mean—the question is what they meant in the 90s and what Linda intended when the regulations were adopted, what did enhancing competition mean for these market dominant customers that rails have monopoly power over?
And I would say that the sort of common understanding was that the answer was, yes, that it was really meant to say that we don’t want to create a national system, if you will, unless there was a real enhancement in rail to rail competition. The idea back in the day was, well, are railroads going to become like FedEx and UPS – where there are just two giant companies that serve all the addresses in the United States? And if so then how to ensure competition.
The difference though—between say a package company like FedEx and UPS and a railroad—is that either of those two companies can go to any address in the United States right? They have trucks. They can just show up anywhere. So everyone has two carrier service. But with a rail though, the individual railroad companies own the rail. If you have a chemical plant or a refinery on one railroad, you can only use them.
And so, to the question of what is enhancing competition, I think that that means is the regulator going to create a world where another carrier can operate over those tracks and access the shipper who’s only served by one carrier? And I would say that in the year 2002, when I had my confirmation hearing, and when I was going through the confirmation process, and for really most of the last 25 years, rail regulatory experts, rail management teams, and regulators, including myself, felt that enhanced competition meant creating additional competitive options and not just allowing, not just maintaining a railroad’s current competitive status by maintaining how many carriers served each shipper, but enhancing that and allowing for each shipper to have more carriers. It was really never thought of as applying to intermodal per se, because those shipments could go on a truck or a train today.
JOSH KOSMAN: And to be clear, what Union Pacific, in this giant merger, is arguing is we’re going to take twothirds of our traffic is going to be from trucks. We’re going to take traffic from trucks and move it on rail, which is intermodal, like you said, and it’s not the other half of the industry where there is no choice in the matter.
ROGER NOBER: And so, what UP has said—and look, I can understand how they’ve argued this—that we are enhancing competition because we are going to give intermodal shippers a better option to move things, to take freight off of trucks and put it on rail. Because we’re going to eliminate handlings, interchanges, between carriers, and it’s just going to go straight through.
And think of it like if you’re flying from New York to Los Angeles and you have to stop in Denver. So, you fly on Delta from New York to Denver and then change carriers and get on United, right? You have to go out. You have to go back through security, recheck in. As opposed to if you’re just on one carrier and fly nonstop.
So, that’s the analogy they make is they’re going to be more efficient by taking out that interchange, if you will, and eliminating interchange friction
JOSH KOSMAN: And just for those who might be watching this, who might not know, this would be the first transcontinental railroad.
ROGER NOBER: Correct.
JOSH KOSMAN: Connecting east and west.
ROGER NOBER: And it certainly is true that eliminating—having one transcontinental carrier does make it easier to operate. But will it take as much time out of the system as they are speculating and reduce costs as much as they’re speculating? That’s a different question and whether that will really happen. I personally am skeptical.
And some of the reason I am skeptical is the infrastructure as well. Do they have enough to—think of, again, using the airport analogy—to get containers on the railroad, you need a big intermodal yard that can lift the containers up off of trucks and put them onto rail. And then you need enough track capacity. Because intermodal movements have to go quickly. And the challenge is that, for long haul intermodal movements that are cost sensitive, where the cost advantage of being on rail matters, they’re probably already on rail.
And so, the things that aren’t on rail now are ones that service reliability matters a lot. And so, for service to be reliable and competitive to truck, you need to have the infrastructure to make sure that trains can go at track speed, which might be 70 miles an hour. You need to be able to get through congested areas quickly. You can’t have service outages and you need reliability as well as speed.
And I think that there’s a big question that’s going to come up as we go into the merger process. Can this merger really deliver on those promises given what its operating plan is? But that’s a little different than does it enhance competition.
JOSH KOSMAN: And how do you think their enhanced competition arguments have evolved in the second application compared to the first?
ROGER NOBER: Well, they really haven’t changed much. What they’ve done is they’ve really focused on the only competition that matters here is going to be truck to rail competition. And in fact, as we look at the market—this is paraphrasing UP—we think the market for truck conversion is even bigger than we originally thought. So, there’s even more potential for truck to rail competition.
Now, I think a question for the agency is going to be, is—because look, taking trucks off the highway and putting them on rail is overall a good thing, right? To people who are drivers, for pollution, because rail can take a ton of freight, 500 or more miles on a gallon of diesel, it’s a pretty amazing efficiency. But is that enhanced competition or is that the public interest? And even if it is in the public interest, are those projections realistic?
And the regulator has to figure out is what you’re going to do to be able to—the regulators statutory mission is to protect rail customers who don’t have competitive alternatives. And is this going to help or hinder that?
JOSH KOSMAN: Roger, we just got a question from a viewer and he asks if the merger allows Union Pacific to offer superior product offering, isn’t this the definition of being pro-competitive?
ROGER NOBER: Well, I mean, that’s certainly the UP view. And if they can offer a superior intermodal product, that is a help. But again, you have to remember that there’s an entire half of railroad traffic which doesn’t have competitive alternatives. They’re stuck on the railroad. And in essence, for a lot of reasons, a larger single line carrier makes them in some ways more captive and gives larger carriers more market power over them.
And I’d say the other question that the regulators are going to have to deal with here is when you create a carrier that has almost, if not more than, close to 50 percent, if not more than 50 percent, of the market, at what point does it become too big to regulate? Because even if you put competitive conditions in there, can a regulator enforce them?
And sometimes I use the analogy—I know I keep using aviation analogies, but to something like Boeing or Lockheed, which is at what point do private entities become too large to really regulate? And the government becomes sort of a partner as opposed to a regulator at that point.
JOSH KOSMAN: It’s really interesting. We’ll write about this soon. So, at the DOJ, they’re going to weigh in, even though they do not have final say. That’s STB. But they’ll do a competitive analysis. And I saw in 2010, that Russ Pittman, who’s still at the DOJ, did a whole paper about rails. It’s pretty exhaustive. And there is a section on mergers.
And he says, basically a lot of what’s going on right now. That the only mergers that would make sense would be transcontinental like this, and there could be efficiencies., But the issues would be, would it be too large? Would it industry too much? So, he predicted a lot of this back in 2010. And it seems like a lot of it is playing out right now.
ROGER NOBER: And look, Russ is somebody who I’ve known for many years and brings a wealth of experience. Now he has a particular point of view here. But that said, I mean, there really is the question, can you regulate service?
Now, the other issue that a carrier like UP has is their recent history. And you’ve seen a lot of sort of public debate about the UP CEO saying, don’t judge us by history, judge us by our intent. But they’ve been what’s called a precision schedule railroad carrier. And Precision Schedule Railroading, or PSR, the idea is to move—use the least amount of capital and infrastructure and assets possible to move something and do it on a scheduled, precise basis. Because it’s easier to set your people, it’s easier to maintain your track and to schedule movement, in the most efficient way.
And so, PSR railroads though have generated a lot of revenue from price, particularly price on captive traffic. And what they’ve done is they’ve sort of forced shippers that don’t have competitive alternatives to fit into their network. And that has been controversial, right? So, if they say, well, you’re only going to get service three days a week, you don’t really have a choice, right? You’re kind of stuck with that.
And so, that’s going to be the question as to whether they will have so much market power on a transcontinental basis that they will be able to exercise too much market power over the captive customers. And it’s going to be up to the Regulators to determine that answer.
JOSH KOSMAN: So, a question that’s been posed—and it’s a good one, and it speaks to the political nature of what’s happening. President Trump has said nice things about the Union Pacific CEO. Alliance Resource Partners—that represents part of the coal industry and Peabody Coal, the biggest players—have come out supporting the merger not like last week, but since it’s been announced.
How independent do you think the STB might be? And where do you think the President might be? Because now there has been some new opposition. Some Republican AGs have come out against the merger saying they have serious concerns. As you said, it does appear that the winds are shifting a little.
ROGER NOBER: And there was a coalition that was formed in opposition as well. And Josh, it’s an interesting question and one that those of us in Washington, who both study administrative law and follow independent agencies, wonder about. The tradition of the STB is that it is fiercely independent and technical and apolitical.
So, you’ve seen a lot of controversy involving independent agencies, the SEC and the Federal Trade Commission, for example, who have waded into national political issues, using SEC regulation for climate disclosure or chilling of mergers and acquisitions in advance by the FTC and refusal to give any sort of staff advice. And that’s never been the STB.
So, the sort of drivers of frustration with independent agencies have not really been things that have affected the STB in one way or another. It’s something that has just not been—we just haven’t seen that. I’d say that this administration, though, has taken a unique view toward independent agencies. It follows what’s called the unitary executive theory, which is that there is only one executive, which, considering that the President was a CEO, it doesn’t surprise me he subscribes to that. That’s how CEOs work, right? They think everybody works for them. So, I understand the instinct there.
I would say they have, in some cases, fired independent agency Board Members for cause. But in most cases, they fired a number of independent agency regulators and dared them to raise the challenge those terminations before the Supreme Court, which they now have. And in my entire 30-year career of practicing administrative law and heading an agency and even creating an administrative agency, I had never heard of the Supreme Court case called Humphrey’s Executor, which basically allowed the independent agencies to only be fired for—said that the President can’t fire an independent person unless they’re for cause, if the Congress provides for it.
On the other hand—and I will tell you, when I was confirmed as Chairman, I thought that was the first and only time in my professional life that I had job security. I thought, well, for the five-year term, I have job security as long as I’m not causing mal-feasance or whatever it is. And, of course, it was false consciousness on my part, because there has been a desire to challenge that . And that’s before the Supreme Court in a case called Slaughter v. Trump or Trump v. Slaughter. And we should get an answer on that in the next six weeks.
The general expectation is the Supreme Court will side with the Trump administration on this because of the growth of policymaking at independent agencies. They’re not roll-up-your-sleeve regulators. So, that’s the backdrop.
JOSH KOSMAN: And, of course, just throwing it in, in the unlikely chance that the Supreme Court goes the other way, then I would think that one of the other Democratic commissioners, who’s not on the board now, Primus, he would be put back on the board, and that would change the dynamic of the board.
ROGER NOBER: That would. The President did terminate one of the Democratic board members, Rob Primus, who’s somebody I’ve known for many years, and in fact, even had him speak to my administrative law class about independent agencies. But they did terminate him. He would go back on.
At the same time, my experience – my observation about this administration is that regulators who roll up their sleeves and do the hard work of regulating are given wide berth here. And if there’s one sort of overall characteristic of Chairman Patrick Fuchs is that he is an absolute determined and focused regulator—he has a great intellectual curiosity and rolls up his sleeves and works incredibly hard and is not trying to create an independent sort of political base for himself. But again, he’s just there to do the work of being a regulator.
JOSH KOSMAN: Do you think if the DOJ—because they’ll rule first in the fall, likely—and not rule, again, to be clear, the STB is just advisory. But when the DOJ gives its advisory opinion, many people think the DOJ is pretty much a direct arm of the President at this point. If the DOJ were to say, I have no idea what they will say. If you have any clue, please let me know.
ROGER NOBER: I don’t.
JOSH KOSMAN: But if they were to say we think this deal should go through, It’s going to take a lot of trucks off the road. Good deal for the environment. Hey, fuel prices are up. Probably a pretty good idea to move it to rail. If they were to approve the deal, how important do you think that would be? How much would it weigh on Fuchs?
ROGER NOBER: Well, from the beginning, I think that a couple of things. I think that the first is that obviously, the UP CEO met with the president in the fall or the summer and had a picture from the Oval Office and the President said nice things. Now, was it because he liked the merger or because he wanted to send the National Guard to Memphis, and Jim had been on the board of FedEx and was strongly supportive of the National Guard in Memphis were FedEx is headquartered? Who knows? I’d say the President’s remarks reflected the President’s views that day.
Now, if there’s one thing that we have seen with the first four years of the Trump administration and now a year and a half of the second Trump administration is that the White House is not firmly committed to any one particular policy. And it can be flexible in their policy views. So, I mean, if you just look at the number of issues where the White House’s view has changed over time with more information coming out, with different circumstances. So, I don’t put the fact that they said one thing nine months ago as dispositive going forward.
But to your other question, there’s a big difference between saying, I’m for the transaction and the hundreds, if not thousands, of details and conditions and individual assessments that would go into it. So, I often say when asked the question you asked, which is what do you think is going to happen? I’d say the question is, I don’t think saying do you think it’s going to get approved is really the right question for the most part. Although, it might be. It’s really are they going to approve something that the UP board is going to want to close on? Or will it have so many conditions that they feel it’s not financially accretive going forward, as the finance people like to say?
JOSH KOSMAN: What do you think the strategy UP seems to be saying publicly? Well, we won’t close if we have to sell these rail lines. We won’t close if X. Like they seem to be signaling—or what do you think they are signaling? It’s strikes me as a little odd they’re signaling all this now.
ROGER NOBER: I will say that I have not totally understood their strategy here. Because the way I would characterize it is they’ve put in the minimum they could and understand that when this merger, when this proposal, goes before the agency, if it’s accepted and they evaluate it, that there’s going to be conditions that are imposed. I feel like in some ways they’re almost treating the agency as a counterparty and that they’re kind of negotiating back and forth and trying to put out statements they wanted to go as quickly as possible to kind of cut down on delay, if you will. And putting out statements that we’re going to walk away if you do too much.
And trying to send signals to the agency about what they will and will not accept. And we’ll see if that proves to be the right strategy. I just don’t know whether or not that’s going to prove to be correct, whether in the end they’re going to get more or less in the way of conditions.
If there is one thing I think they wish they’d take back, it’s probably submitting the application a week before the Christmas and New Year’s holiday and perhaps have should have taken a couple more weeks and not put the agency and its staff in that position. I wouldn’t have advised them to do it that, but they didn’t ask me what I thought.
JOSH KOSMAN: No, probably not. So, as we’re close to wrapping up—and Roger, thanks so much for your time. And we should say, as we did at the top, but to say again, you do some work for BNSF and were the legal counsel and you were also the Chair of the STB and express your views, but just to lay out to our viewers potential biases.
ROGER NOBER: That is true.
JOSH KOSMAN: What do you predict will happen?
ROGER NOBER: I would have said a week ago, before I finished reading and read some of the responses, I felt that they would—I would see it hard for UP to submit something that they didn’t have some signal would be accepted. Now, I don’t know that that’s so—I’m not so sure about that.
I think that what’s been identified as missing are still issues that are out there. And I think one of two things will happen. I think they might accept it and accept it, but say, but you still have to supplement the record in these areas, which does happen.
And one of the options—one of the challenges here—again, this is just sort of internal legal baseball. But once the application is submitted, there’s a time period, a certain period of time for other parties to say, we think that there’s a problem with this and we want it conditioned. And by putting zero conditions in, UP has now put those seeking conditions in the position of essentially having to prove they need one.
So, the burden of proof is subtly shifted onto those seeking conditions rather on the parties merging to prove that you don’t need them. Because they’ve just declared we don’t need them. And I think the agency will be sensitive to putting other parties in the position of proving they need a condition.
And the other thing that could happen is if UP feels they need to put more evidence in response to what parties raise, they can put it in and the parties wouldn’t have a chance to rebut it, if you will. So, it’d be kind of on reply and you don’t have a chance to reply to replies. So, I think the agency will be sensitive to gaming out and not giving parties a chance to, to be able to, to reply to things.
So, I think whether they accept it or reject it and say that you need to come back with X amount of materials or accept it, but say, okay. But now we’re going to toll the statute to give you a chance to supplement it in these areas. I’m not sure. I would bet it would be one of those two, but I’m not positive of that.
JOSH KOSMAN: And Roger, what about the merger itself? Let’s assume—this may not be the case. Let’s assume they provide an application that the STB accepts. What do you think the timeline will be? And how do you think this might play out? There’s a, the breakup fee is not huge for Union Pacific if they want.
ROGER NOBER: No, it’s not. I think that UP has been clear about saying they won’t do a merger at any cost. I’m not sure that that’s the conventional wisdom, that the personalities involved are so wedded to it, they’ll go forward. Now, whether or not UP’s board would halt it. I don’t know. And it will be up to them.
But the question then is can the agency craft conditions—which I think they’re sensitive to—that will be durable, that will be self-executing, and that will really address the competitive issues that come up. And so, I think that that’s going to be the question. Can you come up with conditions? Can the regulator come up with conditions that do that?
In past mergers, over time, those competitive conditions haven’t proven to be really effective, and that there are a lot of ways of frustrating them, which UP in general, and Jim Vena, when he was both at CN and at UP knows very well how to do. And so, I think that to me is the hardest thing, which is even if you felt there was some real benefit to it, could you craft conditions to address the inevitable competitive issues that market power, that this new carrier is going to have, in a way that is durable in the long run and not creating a long-term problem? Because remember, these are permanent. You can’t undo it. And that’s the challenge.
JOSH KOSMAN: I know you’re limited on time. And thank you so much for the time you’ve given. What do you think is the timing here for the STB? Again, assuming there’s an application that’s accepted, when would you think the STB would make their recommendation?
ROGER NOBER: I think it is going to—I tell everybody, and not to be glib, but bet the over. Because as a matter of administrative practice, the only thing that the applicant controls is the application. And once it goes in, now they’re responding to other parties’ evaluation of it. The board is then responding to both of those. And then they’re going to have parties filing and asking for things. And they’re going to be responding to those.
So, I do think the agency will be sensitive to the challenge for parties of evaluating and commenting on a matter of this size. And so, I think that they will take time to do what they need to do. Now, it’s not Patrick’s style to go over statutory deadlines, on the one hand.
On the other hand, the agency has in the past told them—for a reason—told them to stop the deadline from going on to finish—for new information to come in. And so, I think that the agency can and should take as long as it needs to get the information it needs here to make the right decision for the public.
JOSH KOSMAN: So, it certainly sounds like you think it’ll take—the company, UP, is saying second quarter 27. It sounds like you think that.
ROGER NOBER: I’d be shocked if they got a final decision in the second quarter. I shouldn’t say—I’d be very surprised if it were—I mean, if this didn’t happen until 28, I wouldn’t be shocked.
So, I would say second half of 27 on the early—would be what I’d be looking at. But I don’t—because I just think there’s so much here and there’s a limited amount of bandwidth and the agency’s not going to want to get it wrong. And even if the administration at a very high-level says, we think this is a good thing, that’s different than the thousands of conditions that have to go into it.
JOSH KOSMAN: And it may be a final quick question because the Republicans—there are a good handful of Republican AGs have expressed concern, including from South Dakota, which is the home of Senator John Thune, the Majority Leader. How much do you think they might weigh in further and how much do you think that might matter? In a general DOJ case, they can sue. I don’t think they can do that here, but you know better than I.
ROGER NOBER: I think they could only challenge the final ruling, but I’m not positive of that. I do think that the AGs, I think public officials weighing in always carries outsized weight. And we haven’t heard from many of the passenger agencies yet. We haven’t heard from state AGs. And so, I think all of that is to be determined. Because I think a lot of them are saying, well, why should I get involved in something until I need to?
And so, that will come from—and the other thing is that a lot of customers, real customers, are maybe reticent about raising their own voices, but go to their state AGs or local officials and say, hey, can you provide air cover for me?
And so, you might see something like that happen as well. And it wouldn’t shock me if something like that did. But I think they typically do carry a lot of persuasive power, particularly the more broadbased they are. And I expect to see more, not less, of that.
And sometimes I—because I do think a very large carrier does have size can be market power. And I don’t mean to sound like Elizabeth Warren here. I promise I’m not. I was a Republican political appointee. But that is a reality when it comes to a network industry like railroads.
JOSH KOSMAN: If this merger were to happen, how does it affect a company like BNSF, who is the, you know, they would be number one and BNSF would be 1A, if this merger happens?
ROGER NOBER: I don’t know what BNSF will do and they haven’t told me. And really it’s going to be up to – so, you have to remember that BNSF is the largest segment of Berkshire Hathaway. And it’s really what does Berkshire Hathaway decide what they want to do with their capital?
And so, that’s why the question here has come up to what has Warren Buffett or Greg Abel said? And so, I don’t know what they’re going to do. And I can tell you when Warren’s deciding what to do with capital, I can tell you who he’s not calling. Even though he’s a great person and I’ve met him many times.
JOSH KOSMAN: Great. Roger, anything else that you’d like to add?
ROGER NOBER: No, just it’s an amazing and interesting time in the rail industry. So, I know there’s a lot going on. And the fact that somebody like you and your publication is interested in the rail industry shows how momentous it really is. So, it’s to be determined.
JOSH KOSMAN: All right. Great, Roger. Thank you so much for your time.
ROGER NOBER: Thank you for having me.
