OMAHA, Neb. (AP) — Union Pacific wants to buy Norfolk Southern in a $85 billion deal that would create the first transcontinental railroad in the U.S, potentially triggering a final wave of rail mergers across the country.
The proposed merger, announced Tuesday, would marry Union Pacific’s vast rail network in the West with Norfolk’s rails that snake across the Eastern United States. The combined railroad would include more than 50,000 miles of track in 43 states with connections to major ports on both coasts.
The nation was first linked by rail in 1869, when a golden railroad spike was driven in Utah to symbolize the connection of East and West Coasts. Yet no single entity has controlled that coast-to-coast passage.
The railroads argue a merger would streamline deliveries of raw materials and goods nationwide by eliminating delays when shipments are handed off between railroads. The AP first reported the merger talks earlier this month a week before the railroads confirmed the discussions last week.
Any deal would be closely scrutinized by antitrust regulators that have set a very high bar for railroad deals after previous consolidation in the industry led to massive backups and snarled traffic.
But Union Pacific CEO Jim Vena, who would lead the combined company, said the expanded railroad will more seamlessly get lumber from the Pacific Northwest, plastics from the Gulf and steel from Pittsburgh to their destinations. And he promised to avoid past merger mistakes.
“It’s great for America,” Vena said. “We’re going to be able to move products quicker, faster, more efficiently, better service, better for our customers in that we are going to be able to give them a product that allows them to win in the marketplace.”
Rail deal would have broad impact
If the deal is approved, the two remaining major American railroads — BNSF and CSX — will face competitive pressure to merge as well. The continent’s two other major railroads — Canadian National and CPKC — may also get involved. The Canadian rails span all of that nation and cross parts of America. CPKC rails stretch south into Mexico.
Some of the benefits of the deal should trickle down to consumers if the railroads are able to streamline shipments because that will help keep costs down, said Edward Jones analyst Jeff Windau. But, he said, “there is that potential that there’s going to be some service disruptions.”
The American Chemistry Council said the major chemical makers it represents have serious concerns that the deal could reduce rail competition, but other shippers like Amazon and UPS may see benefits of potentially faster, more reliable delivery. They, along with unions and affected communities, will have a chance to weigh in before the U.S. Surface Transportation Board.
The nation’s largest rail union, SMART-TD, quickly opposed the merger over concerns of jeopardizing progress that Norfolk Southern has made in safety and labor relations since its disastrous 2023 derailment in East Palestine, Ohio. The union said that Union Pacific’s record is troubling on safety, and treatment of workers. The smaller Transport Workers Union echoed those concerns saying the deal would deliver “billions for Wall Street while workers get shafted.” Several other major rail unions said they are also concerned but want to meet with management first before weighing in on the deal.
Railroads optimistic about chances for approval
There’s speculation that this deal might win approval under President Donald Trump’s pro-business administration, but the STB is currently evenly split between two Republicans and two Democrats. The board is led by a Republican, and Trump will appoint a fifth member before this deal will be considered.
Norfolk Southern CEO Mark George said the “stars are aligned” right now for this deal with railroads that have a lot of connections, and the ongoing expansion of domestic manufacturing. “Then on top of that, you’ve got a political situation where the administration and the STB have both changed to maybe be a little more open minded to combinations that help the country grow,” he said.
CFRA Research analyst Emily Nasseff Mitsch thinks the odds favor approval though the deal will face intense scrutiny.
Union Pacific is offering $20 billion cash and one share of its stock to complete the deal. Norfolk Southern shareholders would receive one UP share and $88.82 in cash for each one of their shares as part of the deal that values NS at roughly $320 per share. Norfolk Southern closed at just over $260 a share earlier this month before the first reports emerged speculating about the deal that includes a $2.5 billion breakup fee.
Shares of both railroads fell more than 2% Tuesday after the deal was announced, but Norfolk Southern was down more than 3%.
More consolidation could foll
ow
U.S. railroads have already undergone extensive consolidation since the industry was deregulated. There were more than 30 major freight railroads in the early 1980s. Today, there are only six major, or Class 1, railroads.
Western rival BNSF, owned by Berkshire Hathaway, has the war chest to pursue an acquisition of CSX, to the east, if it chooses. CEO Warren Buffett is sitting on more than $348 billion cash and the consummate dealmaker may want to swing for the fences one last time before stepping down at year’s end, as planned.
Buffett downplayed reports that he had enlisted Goldman Sachs to advise him on a potential rail deal, but he rarely uses investment bankers anyway. Buffett reached an agreement to buy the parts of the BNSF railroad he didn’t already own for $26.3 billion in a meeting with its CEO more than 15 years ago.
BMO Capital Markets analyst Fadi Chamoun said in a research note that it’s likely a second transcontinental railroad merger will follow this announcement because it would be risky to remain independent and try to compete.
History of problems after past rail mergers
Yet there’s widespread debate over whether a major rail merger would be approved by the U.S. regulators, which have established a high bar for consolidation in the crucial rail industry.
That’s largely due to the aftermath of industry consolidation nearly 30 years ago. A merger between Union Pacific and Southern Pacific in 1996 led to an extended period of snarled traffic on U.S. rails. Three years later, Conrail was divvied up by Norfolk Southern and CSX, creating serious backups in the East.
“We’re committed to making sure that doesn’t happen in this case,” George said. He added that the railroads will spend the next two years planning for a smooth integration before this deal might get approved.
U.S. Senators Tammy Baldwin and Roger Marshall promptly sent a letter Tuesday urging the STB to examine the merger closely because they “are concerned that a merger of this magnitude would diminish options for industry to transport goods, increase costs, create more unreliable service for U.S. shippers, and reduce overall competition.”
But CPKC merger was approved two years ago
Two years ago, the STB approved the first major rail merger in more than two decades, allowing Canadian Pacific to acquire Kansas City Southern for $31 billion to create the CPKC railroad.
There were compelling factors in that deal, however. For one, it was the two smallest major freight railroads. The new railroad, regulators reasoned, would benefit trade across North America.
Union Pacific and Norfolk Southern said they hope to get approval for the deal by early 2027. They expect to eliminate $1 billion in costs annually, and Vena said no union members should lose their jobs but the workforce could still shrink through attrition. Revenue is also expected to jump.
On Tuesday, Norfolk Southern reported a $768 million second-quarter profit as volume grew 3%, up from $737 million a year ago. Results were affected by insurance payments the East Palestine derailment and restructuring.
Without the one-time factors, Norfolk Southern made $3.29 per share, just shy of the $3.31 per share that Wall Street expected.
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Associated Press writer Wyatte Grantham-Phillips contributed to this report.
