Union Pacific has announced its intention to buy a smaller rival, Norfolk Southern. Norfolk Southern will create the first coast-to-coast freight rail operator in the United States, restructuring the movement of goods from grain to automobiles across the United States.
The Omaha, Nebraska-based railroad giant announced the proposed $85 billion deal on Tuesday.
If the merger is approved, the transaction will be the largest acquisition ever in the railroad sector.
Union Pacific is based two-thirds of the West of the United States, with Norfolk’s 31,382 km (19,500 miles) network spanning 22 eastern states primarily.
The two railways are expected to have a corporate value of $250 billion and unlock approximately $2.755 billion in annual synergy.
The $320 per share price means Norfolk’s 18.6% premium is 18.6%, as reports of the merger first appeared on July 17th.
The company said last week on Thursday that it was having a high level of discussion about the possibility of a merger.
The deal faces a lengthy scrutiny of regulations amid a union’s concerns about potential rising interest rates, disruption in services and unemployment. The 1996 merger of Union Pacific and South Pacific Oceans caused temporary severe congestion and delays throughout the Southwest.
The deal reflects changes in antitrust enforcement under President Donald Trump’s administration. The executive order aimed at removing barriers to integration opened the door to a previously thought unlikely merger.
Patrick Fuchs, chair of the Surface Transportation Committee, appointed in January, advocates for a faster preliminary review and a more flexible approach to merger conditions.
Reviews can take 19-22 months, even under a rapid process, according to those involved in the discussion.
Major railway unions have long opposed integration, claiming that such mergers threaten jobs and endanger the destruction of railway services.
“We will weigh the Trump administration in every way with the STB (regulatory authorities),” said Jeremy Ferguson, president of the transportation division of Smart-TD Union, after the two companies were in high-level consultations last week.
“This merger is not good for labor, railway shippers/customers, or the public,” he said.
The company said it expects to submit applications to STB within six months.
The Transportation Division of Smart-TD Union is North America’s largest railway business association with over 1,800 railway yard masters.
The North American rail industry is tackling unstable freight volumes, rising labor and fuel costs, and increased shipper pressure than service reliability, which could further complicate the merger.
Industry integration
The proposed deal also urged competitor BNSF, owned by Berkshire Hathaway and CSX, to explore merger options, people familiar with the issue said.
The STB agents are already doing prep work and expect to receive not only one but two Megamarger suggestions soon.
If both mergers are approved, the number of Class I railways in North America will be reduced from 6 to 4, consolidating key freight routes and increasing the industry’s pricing power.
The last major contract in the industry was the $31 billion merger between the Pacific Canada and Kansas City Southern, which created the first and only single-line rail network between Canada, the US and Mexico.
The contract, which was finalised in 2023, faced heavy regulatory resistance against fears of curbing competition, reducing employment and destroying services, but was ultimately approved.
According to LSEG data, Union Pacific is valued at around $136 billion, while Norfolk Southern’s market capitalization is around $65 billion.
As of 12:15pm in New York (16:15 GMT), Union Pacific stocks fell 3.9%, while Norfolk Southern was down 3.2%. Competitors’ CSX is also down the trend. Since the market opened this morning, stocks have fallen 1.6%.
