Union Pacific Joins Rail-Merger Debate With Gridlock Warning

  • Canadian Pacific's bid for Norfolk faces `significant' hurdles
  • Traffic concern focuses on Chicago, U.S.'s busiest rail hub

Union Pacific Corp. jumped into the debate over railroad consolidation by saying that Canadian Pacific Railway Ltd.’s proposed takeover of Norfolk Southern Corp. risks adding to gridlock at the industry’s crucial Chicago hub. 

“A single merger could actually increase congestion in Chicago if the merging parties used shared assets to preference their own traffic,” Union Pacific said in a memo to employees Thursday.

Union Pacific used the note to reiterate its opposition to additional consolidation and send a warning to regulators of consequences from letting Canada’s second-biggest railroad combine with the No. 2 carrier in the eastern U.S. Such a deal would upend the North American industry after more than 15 years of stability since the last major tie-up.

Canadian Pacific, rebuffed so far by Norfolk Southern, is following a strategy that may eliminate jobs, crimp investment and let regulators to set rates and service conditions, Union Pacific said. A combination of Canadian Pacific and Norfolk Southern has “significant” regulatory hurdles because it would have to enhance competition and not just maintain it, Union Pacific said.

“UP will continue to monitor the situation very closely,” the Omaha, Nebraska-based railroad said.

Increased Bid

Canadian Pacific sweetened its offer on Wednesday and vowed to take the $27 billion cash-and-stock bid directly to shareholders after Norfolk Southern’s board rejected earlier proposals. The U.S. railroad responded that it would “carefully consider” the latest offer.

Combining the railroads would enable some traffic to be routed away from Chicago through Canada and down the U.S. East Coast, Canadian Pacific Chief Executive Officer Hunter Harrison has said.

Canadian Pacific responded Thursday to a Dec. 14 letter from 10 Democratic legislators who expressed concern to the Surface Transportation Board about the merger’s impact on Chicago rail congestion, on Illinois shippers and from a plan to change management at Norfolk Southern.

“Improving Chicago is a key objective of this transaction and one of the many ways it is in the public interest,” Canadian Pacific said in one of seven points in the letter signed by Harrison.

Congestion in Chicago, the busiest rail hub in North America, was a focus of regulators last year when record cold weather and a surge in crude-oil carloads caused a traffic jam that slowed the entire rail network.                           

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