OMAHA, Neb. (AP) — Union Pacific is seeking to buy Norfolk Southern in a $85 billion deal that would create the first transcontinental freight railroad in the United States.
It also potentially could 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 first was 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 on which so many businesses rely.
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, such as 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, such as 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 the deal might win approval under the pro-business Trump administration, but the STB now is evenly split, with two Republicans and two Democrats.
The board is led by a Republican, and Trump will appoint a fifth member before the 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 get 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 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 Chief Executive Officer Jim Vena, who has championed 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 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.
Chief Executive Officer 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 at the end of the year.
Last week Buffett, in an interview with CNBC, threw cold water on reports that he had enlisted Goldman Sachs to advise him on a potential rail deal.
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 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.
Norfolk Southern and the Lehigh Valley
Officials have called on Norfolk Southern for years to improve rail safety, protect employees, and reduce incidents, particularly after the Feb. 3, 2023 derailment in East Palestine, Ohio near the Pennsylvania border.
Norfolk Southern trains also were part of a number of incidents in the Lehigh Valley last year in which trains left their rails in or around Bethlehem.
In March 2024, a three-train crash near Steel City in Lower Saucon Township sent two locomotives and six train cars into the river.
Three of those cars had been hauling hazardous materials earlier but were empty at the time of the crash, according to the National Transportation Safety Board.
Four months later, four cars on a 125-car train left their tracks while on a bridge crossing the Lehigh River.
All of the derailed cars were empty at the time of the incident, fire officials said, though two other cars on the train were carrying hazardous materials.
There were no reported injuries, and the Lehigh River was not involved or affected in the derailment, which officials blamed on human error.
Earlier this year, a Northampton County industrial facility was approved to transport hazardous waste via railcar through the Lehigh Valley.
The deal was a point of contention for residents, who argued a derailment could cause negative consequences to the nearby Monocacy Creek and residents downstream.
Norfolk Southern's Lehigh Line carries dozens of trains a day through the area, running from Port Reading Junction in Manville, New Jersey, to Penn Haven Junction in Lehigh Township, Carbon County.
It crosses the Delaware River at Phillipsburg, New Jersey.
The majority of the trains on the Lehigh Line are intermodal trains, carrying trailers and containers to and from ports and businesses.
But some also carry hazardous commodities, which are required to be identified by proper shipping name and hazard class and must include all other information required by regulations of the U.S. Transportation Department.
LehighValleyNews.com managing producer Stephanie Sigafoos contributed to this story.