Union Pacific said on Tuesday it would buy smaller rival Norfolk Southern in an $85 billion deal to create the first U.S. coast-to-coast freight rail operator and reshape the movement of goods from grains to autos across the country.
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 U.S. with Norfolk’s 19,500-mile (31,400-km) 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 last Thursday that they were in advanced discussions for a possible merger.
Talks between the two began in earnest in May, according to a source familiar with the matter.
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 (STB) Chairman Patrick Fuchs, appointed by Trump in January to head the agency that oversees competition and other areas of economic importance in the rail industry, has advocated for faster preliminary reviews and a more flexible approach to merger conditions.
The STB review process takes 16 months, per its statute, and the companies have said they are targeting a filing with the STB within six months, people familiar with the matter said. The companies said in the statement they expect the deal to close in early 2027.
Major railroad unions have long opposed consolidation, arguing that such mergers threaten jobs and risk disrupting rail service.
The transportation division of SMART, the International Association of Sheet Metal, Air, Rail and Transportation Workers, said it plans to oppose the merger when it comes before the STB for review.
“We approach this development with measured skepticism rooted in the real-world impact such consolidation could have on rail workers, safety, service quality, and the long-term health of the freight rail industry,” the largest U.S. union said in a statement on Tuesday.
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 and Norfolk’s shares were down about 3% each.
CONSOLIDATION
The proposed deal had also prompted competitors BNSF, owned by Berkshire Hathaway, and CSX, to explore merger options, people familiar with the matter said.
While Berkshire’s enormous cash reserves could allow BNSF to challenge Union Pacific for Norfolk Southern, this was unlikely, investment bankers said, citing both its Chairman Warren Buffett’s distaste for hostile acquisitions and a cash bid would not allow Norfolk Southern shareholders to benefit from future value creation.
Union Pacific is paying around 70% of the Norfolk Southern purchase price in stock, the statement said.
The Union Pacific merger would create a railroad with the largest market share across most commodities, according to Jason Miller, interim chair of the department of supply chain management at Michigan State University’s business college.
“I can’t help but think this would create pressure for BNSF Railway and CSX to explore a merger possibility.”
Agents at the STB are already conducting preparatory work, anticipating they could soon receive not just one, but two mega-merger 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 Brotherhood of Railroad Signalmen raised concerns over safety, transparency, and employee treatment after the deal announcement, saying it would push for safeguards as regulators review the deal.
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.
Morgan Stanley and Wells Fargo advised Union Pacific, and Bank of America served as exclusive financial advisor to Norfolk Southern.
(Reporting by Shivansh Tiwary, Nathan Gomes, Sabrina Valle and David French, additional reporting by Abhinav Parmar, Mariam Sunny, Jody Godoy; Editing by Sriraj Kalluvila, Pooja Desai, Dawn Kopecki, Cynthia Osterman and Marguerita Choy)