‘Incomplete.’ What regulators’ rejection of Norfolk Southern deal means.

The federal Surface Transportation Board unanimously rejected the merger application filed by Atlanta-based Norfolk Southern and its Omaha-based railroad counterpart, Union Pacific, as “incomplete.”

Union Pacific has proposed to acquire Norfolk Southern in an $85 billion deal that would create the country’s first transcontinental railroad company headquartered in Nebraska.

As part of that transaction, the workforce at Norfolk Southern’s Atlanta headquarters could be cut by more than half.

The two companies have argued the transaction would speed up shipping times and allow the railroad industry to better compete with the trucking industry. Critics say it risks creating a near-monopoly with control of more than half of U.S. rail freight.

The Friday decision, the board noted, does not have an impact on its ultimate potential ruling on the merits of the application. But it is a setback in the companies’ quest to push the process through quickly.

In statements, the two companies said they “will provide the additional information requested by the Surface Transportation Board.”

Despite the roughly 7,000 pages the companies filed to the appointed three-member body last month, the board said it “must reject” the application because it is missing necessary information, including market share projections for the proposed new entity as well as the complete merger agreement document.

This echoes some of the criticism the companies faced in comments filed by opponents to the deal, including all of its major Class I railroad competitors.

The American Chemistry Council, an industry group representing major rail customers, has been vocally against the deal and applauded the news.

“A transaction of this magnitude must not be rushed,” it said in a statement.

“We appreciate the Board’s deliberate, data driven approach and its firm commitment to the STB’s modern merger standards, which make clear that any major rail consolidation must enhance competition — not diminish it. That is the only acceptable bar.”

What happens now?

The board says applicants have until Feb. 17 to formally declare their intent to refile — and by when.

In order to fulfill the board’s requests, the companies will need to expand the application to include their complete merger agreement — rather than portions of it — including sections that outline what would give Union Pacific the right to walk away.

The application does not include that complete document, the board said in a release, “Nor do Applicants attempt to justify why they withheld these materials from the Board.”

The board is also asking for “‘full system’ impact analyses that include actual and projected market shares of certain revenues and traffic volumes demonstrating, among other things, the impacts of the transaction on competition.”

The application, the board said, says the merger would “result in traffic growth” and states the full impacts will not be realized until three years afterward. But the application presents projected market shares using 2023 data, the board points out.

The companies must share analyses of actual, projected future market share effects, the board said, in order to fulfill its regulatory obligations — which include deciding how this proposed megamerger would “enhance” competition in an already-consolidated railroad industry.