Union Pacific’s and Norfolk Southern’s refiled merger application includes a more comprehensive traffic analysis, market share forecasts and revised synergy and capital spend estimates. Negligible concessions are assumed by UP/NS, but we believe they will arise as the companies go through the process. The Surface Transportation Board will have 30 days to review the revised application with an expected comment period. The STB had rejected the first application on grounds that it was incomplete and encouraged the Class I’s to resubmit with additional information needed to evaluate competitive impacts of a combination. The resubmitted application now includes market share forecasts (projected 39%) and additional disclosures while also addressing the issue of control over a short line post combination, which were elements highlighted by the STB when they sent the parties back to the proverbial drawing board. The refiled application switches from using the STB’s Carload Waybill sample to comprehensively analyzing UP and NS’s population-level traffic. The outcome is revised synergy and capex estimates. UP/NS see a $200 million reduction in estimated net revenue EBITDA synergies to $1.8 billion by Year 3von lowered high-yield carload volume synergy estimates (to 404,000 carloads from 425,000 carloads), mitigated by a 200,000 increase in estimated intermodal volume synergies. Expected capital outlay was surprisingly reduced but only slightly. No changes made to tech integration expenses. UP’s base case assumes that net synergies do not include significant incremental concessions and are formulated after considering the implications of Competitive Gateway Pricing proposal, which remains unchanged. We remind investors…
