Potential Mega Railroad Merger in the Works
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NBC News
an hour ago
- NBC News
Union Pacific to buy Norfolk in $85 billion mega U.S. railroad deal
July 29 (Reuters) - Union Pacific said on Tuesday it would buy smaller rival Norfolk Southern in an $85-billion deal to create the country's first coast-to-coast freight rail operator and reshape the movement of goods from grains to autos across the U.S. If approved, the deal would be the largest-ever buyout in the sector and combine Union Pacific's stronghold in the western two-thirds of the United States with Norfolk's 19,500-mile network that primarily spans 22 eastern states. The two railroads are expected to have a combined enterprise value of $250 billion and would unlock about $2.75 billion in annualized synergies, the companies said. The $320 per share price implies a premium of 18.6% for Norfolk from its close on July 17, when reports of the merger first emerged. The companies said on Thursday they were in advanced discussions for a possible merger. The deal will face lengthy regulatory scrutiny amid union concerns over potential rate increases, service disruptions and job losses. The 1996 merger of Union Pacific and Southern Pacific had temporarily led to severe congestion and delays across the Southwest. The deal reflects a shift in antitrust enforcement under U.S. President Donald Trump's administration. Executive orders aimed at removing barriers to consolidation have opened the door to mergers that were previously considered unlikely. Surface Transportation Board Chairman Patrick Fuchs, appointed in January, has advocated for faster preliminary reviews and a more flexible approach to merger conditions. Even under an expedited process, the review could take from 19 to 22 months, according to a person involved in the discussions. Major railroad unions have long opposed consolidation, arguing that such mergers threaten jobs and risk disrupting rail service. 'We will weigh in with the STB (regulator) and with the Trump administration in every way possible,' said Jeremy Ferguson, president of the SMART-TD union's transport division, after the two companies said they were in advanced talks last week. 'This merger is not good for labor, the rail shipper/customer or the public at large,' he said. The companies said they expect to file their application with the STB within six months. The SMART-TD union's transport division is North America's largest railroad operating union with more than 1,800 railroad yardmasters. The North American rail industry has been grappling with volatile freight volumes, rising labor and fuel costs and growing pressure from shippers over service reliability, factors that could further complicate the merger. Union Pacific's shares were down about 1.3%, while Norfolk fell about 3%. Consolidation The proposed deal had also prompted competitors BNSF, owned by Berkshire Hathaway BRKa.N, and CSX CSX.O, to explore merger options, people familiar with the matter said. Agents at the STB are already conducting preparatory work, anticipating they could soon receive not just one, but two megamerger proposals, a person close to the discussions told Reuters on Thursday. If both mergers are approved, the number of Class I railroads in North America would shrink to four from six, consolidating major freight routes and boosting pricing power for the industry. The last major deal in the industry was the $31-billion merger of Canadian Pacific and Kansas City Southern that created the first and only single-line rail network connecting Canada, the U.S. and Mexico. That deal, finalized in 2023, faced heavy regulatory resistance over fears it would curb competition, cut jobs and disrupt service, but was ultimately approved. Union Pacific is valued at nearly $136 billion, while Norfolk Southern has a market capitalization of about $65 billion, according to data from LSEG.
CNN
an hour ago
- CNN
America's first transcontinental freight railroad is planned after a megamerger
Corporate newsFacebookTweetLink Follow Two of the largest US railroads, Union Pacific and Norfolk Southern, announced on Tuesday a plan to combine in a $72 billion deal that would create America's first transcontinental freight railroad. The stock and cash deal would be the largest ever in a sector that has already massively consolidated in recent decades. The deal still needs regulatory approval and will serve as a major test for the Trump administration's antitrust regulators, who have appeared more willing than the Biden administration to approve mergers in certain industries, even if they reduce significant market competitors. US freight railroads are crucial to America's economy, carrying about 30% of the nation's freight in terms of weight, according to the Bureau of Transportation Statistics. Trains transport autos, retail goods, food and energy products, as well as raw materials and parts needed to run America's factories. 'Railroads have been an integral part of building America since the Industrial Revolution, and this transaction is the next step in advancing the industry,' said Union Pacific CEO Jim Vena in a statement Tuesday. The companies confirmed they were in advanced talks last week. Union Pacific (UNP) serves the western United States, while Norfolk Southern (NS) serves the eastern parts of the country. The coast-to-coast combination could force the other two major freight railroads, Burlington Northen Sante Fe, a unit of Berkshire Hathaway, and CSX Corp., to also merge to stay competitive, leaving the nation with two major freight railroads moving goods east-to-west. 'We are confident that the power of Norfolk Southern's franchise, diversified solutions, high-quality customers and partners, as well as skilled employees, will contribute meaningfully to America's first transcontinental railroad, and to igniting rail's ability to deliver for the whole American economy today and into the future,' said Mark George, CEO of Norfolk Southern, in a statement. Rail customers, many of whom have been complaining about the quality of rail service for years, are concerned that any merger could result in service problems and supply chain disruptions. 'The experience in the rail industry has been that mergers have resulted in no improvement in, or worse, service, and higher rates,' said Ann Warner, a logistics consultant to numerous rail customers and trade associations of rail shippers, many of whom have only one railroad serving their property. 'Shippers won't know until an (merger) application is filed what this all means.' Service has suffered following every rail merger, said Peter Swan, emeritus professor of logistics and operations management at Penn State Harrisburg. But the railroads promised Tuesday that the deal would benefit their customers. 'Imagine seamlessly hauling steel from Pittsburgh, Pennsylvania to Colton, California and moving tomato paste from Heron, California to Fremont, Ohio. Lumber from the Pacific Northwest, plastics from the Gulf Coast, copper from Arizona and Utah, and soda ash from Wyoming,' said Vena's statement. Still, it could take months, if not years, for the deal to close, according to experts. The deal will need the approval not just of antitrust regulators but also such bodies as the Surface Transportation Board. However, in 2023, the Surface Transportation Board approved the first major railroad merger in more than two decades when Canadian Pacific purchased Kansas City Southern, creating a direct freight line from Canada through the United States to Mexico. The deal was approved, in part, because the combined company had little to no overlapping routes, which is the case with Union Pacific and Norfolk Southern. Transcontinental rail service has been available since 1869, just four years after the end of the Civil War, when the famous 'Golden Spike' linked Union Pacific with the Central Pacific railroads in Promontory Summit, Utah. But moving goods cross-country has always required they be handed off from one railroad to another. While Amtrak trains provide coast-to-coast passenger service, they depend primarily on tracks owned and maintained by the nation's freight railroads. Most freight rail mergers combine railways that share a similar service area to build density and market share rather than seek an end-to-end merger like this one, Swan said. But doing that once again is likely to be a regulatory non-starter. With only two eastern freight railroads, CSX and Norfolk, and two western freight railroads, BNSF and Union Pacific, remaining after years of mergers, an end-to-end merger is the only combination still available. Swan said the while there could be some increased efficiency moving traffic cross-country, such as from the Port of Los Angeles to customers on the East Coast, trains will still need to stop and remove the cargo for different destinations. 'There's not that many containers that move all the way from one coast to the other,' he said. This story has been updated with additional context and developments.
The Hill
2 hours ago
- The Hill
Union Pacific and Norfolk seek 1st transcontinental railroad through a massive merger
OMAHA, Neb. (AP) — Union Pacific is seeking to buy Norfolk Southern in a $85 billion deal that would create the first transcontinental railroad in the U.S, and potentially trigger a final wave of rail mergers across the country. The proposed merger, announced Tuesday, would marry Union Pacific's rail network in the West with Norfolk's rails that snake across Eastern states. 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 that so many businesses rely on. The railroads said the tie-up would streamline deliveries of raw materials and goods across the country by eliminating several days of 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 if the deal is approved, the two remaining major American railroads — BNSF and CSX — will face tremendous pressure to merge so they can compete. The continent's two other major railroads — Canadian National and CPKC — may also get involved. Some big shippers like chemical plants may be wary of the merger because of fears about the monopoly power the combined railroad would wield over rates, but other major rail customers, like Amazon and UPS, may back the deal if it means their packages will arrive more quickly and reliably. Those big companies, along with unions and communities across the country that the railroads cross, will have a chance to weigh in on the deal before the U.S. Surface Transportation Board. Consumers would benefit if the deal does reduce shipping rates and delivery times as the railroads predict. There's speculation that this deal might win approval under the pro-business Trump 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. 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 speculating about a deal. Union Pacific's stock rose slightly to $229.35 in premarket trading, while Norfolk Southern's stock dipped more than 2% to $279.95. Union Pacific CEO Jim Vena, who has been championing a merger, said the deal could make it possible for lumber from the Pacific Northwest and plastics produced on the Gulf Coast and steel made in Pittsburgh to all reach their destinations more seamlessly. 'Railroads have been an integral part of building America since the Industrial Revolution, and this transaction is the next step in advancing the industry,' Vena said. A combined Union Pacific and Norfolk would have an advantage because they won't have to hand off shipments in the middle of the country anymore, enabling them to make deliveries more quickly and likely at a lower rate. U.S. railroads have already gone through extensive consolidation. There were more than 30 major freight railroads in the early 1980s. Today, six major railroads that handle the majority of shipments nationwide. Rival BNSF, owned by Berkshire Hathaway, has the war chest to pursue an acquisition of it chooses. CEO Warren Buffett is sitting on more than $348 billion cash and he may be interested in completing one last major deal before he gives up his role as chief exeucutive at the end of the year. Last week Buffett threw cold water on reports that he had enlisted Goldman Sachs to advise him on a potential rail deal in an interview with CNBC, but given that he rarely uses investment bankers that doesn't mean that he and his successor, Greg Abel, aren't considering their options. After all, Buffett reached the agreement to buy the rest of BNSF for $26.3 billion in a private meeting with the CEO in 2009. Yet there's widespread debate over whether a major rail merger would be approved by the Surface Transportation Board, which has established a high bar for consolidation in the crucial industry. That's largely because of the aftermath of an industry consolidation nearly 30 years ago that involved Union Pacific. Union Pacific merged with Southern Pacific in 1996 and the tie-up led to an extended period of snarled traffic on U.S. rails. Three years later, Conrail was divvied up by Norfolk Southern and CSX, which led to more backups on rails in the East. However, just two years ago, the STB approved the first major rail merger in more than two decades. In that deal, which was supported by big shippers, Canadian Pacific acquired Kansas City Southern for $31 billion to create the CPKC railroad. There were some unique factors in that deal that combined the two smallest major freight railroads. The combined railroad, regulators reasoned, would benefit trade across North America. Union Pacific and Norfolk Southern said they expect to submit their application for approval within the next six months and hope the deal would get approved by early 2027. On Tuesday, Norfolk Southern reported a $768 million second-quarter profit, or $3.41 per share, as volume grew 3%. That's up from $737 million, or $3.25 per share, a year ago, but the results were affected by insurance payments from its 2023 East Palestine derailment and restructuring costs. Without the one-time factors, Norfolk Southern made $3.29 per share, which was just below the $3.31 per share that analysts surveyed by FactSet Research predicted.
