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While the dream of connecting the US’ vast rail networks under one transcontinental operator has been in discussions for over a century, it could be happening for real this time.
Today, railroad giant Union Pacific officially announced its plans to buy Norfolk Southern in a massive $85 billion merger.
A big deal (literally): The acquisition would create the US’ first coast-to-coast freight network, running across 50,000 miles in 43 states. Union Pacific currently dominates the Western US, while Norfolk’s routes span throughout the East.
The railroads argue that one joint company operating the entire route would streamline shipments, because packages wouldn’t be slowed down by being transferred in Midwestern cities like Chicago. While the US rail networks have been linked east to west since 1869 and the “Golden Spike”, no single company has operated a coast-to-coast route since then.
“We will deliver a railroad that is like none other in North America that provides the best service for customers,” Union Pacific CEO Jim Vena said on a call with analysts. Vena will lead the new company.
The deets: Union Pacific agreed to buy Norfolk Southern with stock and cash worth $72 billion, in addition to Norfolk’s debt. The companies said they planned to complete the merger by 2027.
Rail unions, however, were less enthusiastic. The largest rail union in the country said it intends to oppose the merger, citing safety concerns.
Shares of Union Pacific sank 2.39%, while Norfolk Southern slumped 3.04%. Investors could be concerned about regulatory approval or the long time frame for the deal, according to Barron’s.
Industry at a crossroads
If approved by antitrust regulators, the tie-up would be the biggest M&A deal of the year and biggest rail merger ever. But it’s not certain that the Surface Transportation Board, which oversees such mergers, will give the greenlight: If Union Pacific and Norfolk Southern are allowed to combine, that would mean roughly two-fifths of rail shipping would go through one company, potentially leading to price hikes for shipping customers. The two companies are likely hoping the business-friendly Trump administration will authorize the deal.
The acquisition, should it go through, would also put pressure on rival railroads BNSF (owned by Berkshire Hathaway) and CSX to merge themselves to create a competing transcontinental rail network. If BNSF and CSX did combine, 90% of rail freight would be carried by the two companies.
Zoom out: The US rail industry has consolidated dramatically through mergers. There were roughly 30 major freight railroads in the 1980s, but there are just six today…and perhaps five in 2027.—LB