Business Union Pacific and Norfolk aim to merge massively to create the first transcontinental railroad.

Omaha, Nebraska (AP) — In a $85 billion deal, Union Pacific wants to acquire Norfolk Southern, establishing the nation's first transcontinental railroad and possibly starting the last round of rail mergers. The proposed merger, which was made public on Tuesday, would combine Norfolk's rails that wind through the Eastern United States with Union Pacific's extensive rail network in the West. With connections to important ports on both coasts, the combined railroad would span 43 states and more than 50,000 miles of track.

When a golden railroad spike was driven in Utah in 1869 to represent the union of the East and West Coasts, the country was first connected by rail. However, that coast-to-coast route has not been governed by a single entity. The railroads contend that by removing delays in shipments being transferred between railroads, a merger would expedite the delivery of goods and raw materials across the country. A week before the railroads confirmed the merger talks last week, the AP broke the story first this month.

Antitrust authorities, who have set a very high standard for railroad deals after prior industry consolidation caused severe backups and snarled traffic, would closely examine any deal.

However, the expanded railroad will more easily transport steel from Pittsburgh, plastics from the Gulf, and lumber from the Pacific Northwest to their destinations, according to Union Pacific CEO Jim Vena, who would head the merged company. He also pledged to steer clear of previous merger blunders. Vena declared, "It's fantastic for America." "By providing our customers with a product that enables them to succeed in the marketplace, we will be able to move products more quickly, more efficiently, and with better service."

A rail deal would have a wide-ranging effect. The two remaining major American railroads, BNSF and CSX, will also be under pressure from competitors to merge if the deal is approved. Canadian National and CPKC, the two other major railroads on the continent, might also become involved. The Canadian rails traverse parts of America and the entire country. CPKC rails extend into Mexico to the south. "If the railroads can streamline shipments, that will help keep costs down, so some of the benefits of the deal should trickle down to consumers," Jeff Windau, an analyst at Edward Jones, said. However, "there is that potential that there's going to be some service disruptions," he stated.

The major chemical manufacturers it represents, according to the American Chemistry Council, are extremely concerned that the agreement may lessen rail competition, but other shippers, such as UPS and Amazon, might benefit from possibly quicker and more dependable delivery. They will have an opportunity to voice their opinions before the U.S. Surface Transportation Board, along with unions and impacted communities. SMART-TD, the biggest rail union in the country, swiftly opposed the merger, arguing that it would undermine the safety and labour relations gains Norfolk Southern has made since its catastrophic derailment in East Palestine, Ohio, in 2023. According to the union, Union Pacific has a concerning safety and worker treatment record. Similar worries were expressed by the smaller Transport Workers Union, which claimed that the agreement would benefit Wall Street "billions while workers

These worries were echoed by the smaller Transport Workers Union, which claimed that the deal would benefit Wall Street "billions while workers get shafted." A number of other significant rail unions expressed their concern as well, but stated that they would like to meet with management before commenting on the agreement.

Railroads are hopeful that they will be approved. Though the STB is currently evenly divided between two Republicans and two Democrats, there is conjecture that this deal might be approved under President Donald Trump's pro-business administration. Before this agreement is taken into consideration, Trump will name a fifth member to the board, which is currently led by a Republican. According to Norfolk Southern CEO Mark George, the "stars are aligned" at the moment for this agreement with highly connected railroads and the continuous growth of domestic manufacturing. Then, he added, "you have a political situation where the administration and the STB have changed to maybe be a little more open minded to combinations that help the country grow."

Although the deal will be closely examined, CFRA Research analyst Emily Nasseff Mitsch believes the odds are in favour of approval. To close the deal, Union Pacific is putting up $20 billion in cash and one share of its stock. The deal, which values NS at about $320 per share, would give Norfolk Southern shareholders one UP share and $88.82 in cash for each of their shares. Before the initial rumours about the deal, which includes a $2.5 billion breakup fee, surfaced earlier this month, Norfolk Southern closed at just over $260 per share. Following the announcement of the deal, both railroads' stock dropped more than 2% on Tuesday, but Norfolk Southern's stock dropped more than 3%.

Since the industry was deregulated, there has already been significant consolidation of the U.S. railroads. There were more than 30 major freight railroads in the early 1980s. Only six major, or Class 1, railroads remain today. Berkshire Hathaway's Western rival BNSF has the financial resources to try to buy CSX, to the east, if it so desires. With over $348 billion in cash on hand, CEO Warren Buffett might want to make one last move before he steps down at the end of the year, as planned.

Buffett rarely uses investment bankers, but he played down reports that he had hired Goldman Sachs to advise him on a possible rail deal. More than 15 years ago, Buffett met with the CEO of BNSF and came to an agreement to pay $26.3 billion to purchase the portions of the railroad that he did not already own. In a research note, analyst Fadi Chamoun of BMO Capital Markets stated that it would be dangerous to try to compete while remaining independent, so it is likely that a second transcontinental railroad merger will occur after this announcement.

Problems in the past following previous rail mergers However, there is much discussion about whether U.S. regulators, who have set a high standard for consolidation in the vital rail sector, would approve a significant rail merger. The consequences of the industry's consolidation almost thirty years ago are mostly to blame for that. Traffic on U.S. rails was snarled for a long time after Union Pacific and Southern Pacific merged in 1996. After Norfolk Southern and CSX split up Conrail three years later, there were significant backlogs in the East.

In this instance, we're determined to ensure that doesn't occur," George stated. Before this deal is approved, he added, the railroads will spend the next two years preparing for a seamless integration. U.S. Senators Roger Marshall and Tammy Baldwin swiftly wrote a letter on Tuesday asking the STB to look closely at the merger 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."

However, two years ago, the CPKC merger was approved. The first significant rail merger in over 20 years was approved by the STB two years ago, enabling Canadian Pacific to pay $31 billion to acquire Kansas City Southern in order to establish the CPKC railroad. But there were strong reasons for that transaction. It was the two smallest major freight railroads, to start. Regulators believed that the new railroad would help trade throughout North America.

By early 2027, Union Pacific and Norfolk Southern hope to have the deal approved. They anticipate cutting $1 billion in expenses a year, and Vena stated that while no union members should lose their jobs, attrition may still cause the workforce to decline. Revenue is also expected to jump. Norfolk Southern reported a second-quarter profit of $768 million on Tuesday, up from $737 million in the same period last year due to a 3% increase in volume. Insurance payments, the East Palestine derailment, and restructuring all had an impact on the results. Norfolk Southern made $3.29 per share without the one-time factors, which was just less than the $3.31 per share that Wall Street had anticipated.