Historic merger forms first U.S. transcontinental railroad as Union Pacific takes steps to acquire Norfolk Southern

Following a heavy amount of speculation that Omaha-based Union Pacific (UP) was taking steps to acquire Atlanta-based Norfolk Southern (NS), in first Class I railroad merger since the April 2023 deal, in which Canadian Pacific acquired Kansas City Southern for $31 billion, that was subsequently respectively confirmed by the companies in recent days, UP and NS announced today that they have come to terms on an agreement for a deal.

The companies said that this deal will create the nation’s first transcontinental railroad which will connect more than 50,000 route miles across 43 states from the East Coast to the West Coast and connect around 100 ports as well.

This stock and cash transaction is comprised of a $320 per share value for NS, with the value per share representing an $85 billion valuation for NS and, in turn create a combined enterprise of more than $250 billion.

On a conference call this morning, Union Pacific CEO Jim Vena called this deal a historic, transformative moment for both companies, their customers, and the nation.

Union Pacific CEO Jim Vena:

“Together, we will create America's first transcontinental railroad. With this transaction, we will generate significant value for our stakeholders and for all Americans. It builds upon President Abraham Lincoln's vision of a transcontinental railroad from nearly 165 years ago, and will usher in a new era of American innovation. Railroads are the backbone of the U.S. economy. We power industries, connect communities and deliver the materials that build homes, grocery stores, factories and cities, you name it, and the railroad likely moved it. The United States has the best freight transportation system in the world, and this transaction will make it even stronger. The Transcontinental Railroad is the right next step toward achieving that goal—combining Union Pacific and Norfolk Southern that unite the nation from East to West, transforms the U.S. supply chain and transportation landscape.”

What’s more, Vena explained that this combined single-line service will create new routes and increase access across the country, making freight rail transportation a cost-effective option for more American shippers, adding that by eliminating interchanges, customers’ products will reach their destination faster, and increased speed and reliability, combined with lower brake costs per mile, makes rail a more attractive option than truck. And with improved service reliability, he said the new railroad will lower its customers inventory and equipment costs with reduced cycle times.

“The impacts of this transaction for American communities can't be overstated,” said Vena. “Our merger will reduce highway congestion and road maintenance burdens on American taxpayers. One intermodal train removes more than 550 trucks from the highway and is 75% more fuel efficient than truck. We pay to maintain our networks with focused infrastructure investment to support long-term growth and the safety of our operations. Together, this will enhance supply chain reliability, support the industrial renaissance and make U.S. manufacturing more competitive and accessible.”

NS CEO Mark George said on the call that both NS and UP have been an integral part of the country’s growth for generations, adding that with this transaction the companies will unlock new opportunities for customers.

NS CEO Mark George: 

“By joining together with Union Pacific, this transaction will allow us to build on the momentum that we've created and to really create America's true first transcontinental railroad, delivering more for our customers, our shareholders, our people and the communities we call home. Not only is this an opportunity to strengthen the supply chain, but one where we can deliver something no one else can, a freight railroad that unites our nation, joining our over 19,000-mile network and powerful franchise with those of Union Pacific, will allow us to deliver a more effective and competitive railroad, creating compelling benefits for this iconic American industry and our workers.”

The executives also outlined various key benefits and synergies this deal will create, including:

• connecting major manufacturing centers, agricultural regions, and population centers;
• unlocking rail options for shippers and markets where today's rail network is currently inefficient, such as gateway operations and connecting short distance markets on both sides of the Mississippi River;
• the combined network will connect 10 gateways with Mexico and Canada, as well as more than 100 ports, opening strong international trade routes and supporting local and economic growth;
• the single-line service will reduce interchange points and create increased fluidity and optionality, optimize hand-offs and eliminate “rubber tire” exchanges; and
• the 1 million carloads that interchange between UP and NS will immediately see a 24-to-48-hour transit time improvement

UP’s Vena explained that the combination of faster service and greater market reach is powerful, making this transcontinental railroad an attractive choice for both current and future customers. And he added that the network will be strengthened by continued capital investment, with combined investment in 2025 totaling around $5.6 billion—with these investments critical to support safety, service and operational efficiency improvements

“For us, this isn't just about winning versus the other rails, which we will, but it also competing against other modes of transportation, whether that's barge, truck or pipeline, to name a few,” he said. “It's providing a transportation product that competes for broader industrial development that supports reshoring manufacturing growth in the U.S. Our unified transcontinental offering will allow us to compete more effectively with Canadian transcontinental rails, making U.S. ports more competitive and winning back U.S. freight volume and American jobs with route optionality that creates direct routes east and west will help our customers win in their marketplaces. Single-line service opens up more customer options to and from underserved areas in the Ohio Valley and the Mississippi River watershed.”

While the companies have come to terms, the transaction will be reviewed by the Surface Transportation Board (STB), with UP and NS saying they expect to file their application to the STB within the next six months, adding that, in the application, they, “will describe how the combined rail network will provide safer, faster, and more reliable service, and increased competition to a broad range of stakeholders.”

And upon completion of the deal, the merged entity will be renamed Union Pacific Transcontinental Railroad, with Union Pacific CEO Jim Vena leading the company as CEO, and remaining with the company for at least the next five years. The company’s corporate headquarters will be in Omaha, Nebraska, and the Atlanta-based headquarters of NS will remain a core long-term location for the organization and focus on technology, operations, and innovation as well as other priorities, the companies stated.

In assessing the deal, Tony Hatch, principal of New York-based ABH Consulting, said that, looking ahead, the next steps regarding the approval process will be key. When CN’s bid to acquire KCS did not go through, he said it was based on the undefined concept of “the public interest” and “enhanced competition.

“Historically, competition is defined by the STB as railroad only,” said Hatch. “I think this enhances railroad competition. I thought CN-KCS could also be featured that way, but the Board did not think so, leading to the question of, “what is the standard they are going to hold it to?”

Hatch also cited costs, with this deal proposing $2.75 billion in benefits, or annualized synergies, which UP and NS said are concessions, with the companies not making what concessions they have made public.

“There are several levels of concessions,” he said. “You have STB-related things, where it can direct, say, Canadian railroads or others, as well as a bunch of overlap in Missouri that might need to be resolved, where you have trackage rights or maybe even line sales and areas in which short lines could potentially play. Also, think of all of the other stakeholder groups who know that when a merger happens, you open the books. There will be Amtrak and all the shippers, even the shippers that are going to benefit from this, that are going to say ‘you want me to sign a letter to the STB saying I approve the merger, but I want rate relief in Shreveport, or wherever. Some of this is going to be public and some of this is going to be private.”

From a municipal perspective, Hatch made the case that the costs to towns impacted by a railroad merger stretching from the Pacific Ocean to the Atlantic Ocean will not be known for a while. While there are towns that might see more business due to growth from this deal, Hatch explained that the corollary to that is a town that previously had two trains per day pass through may now see 10 trains passing through per day. That subsequently creates the need for things like grade crossings, flyovers, undercuts, and trees planted, which may cost, a few million for a single town, leaving open the question of how many towns along the way are impacted.”

“The question is, what is the cost?” said Hatch. “We won’t know that for a while. We don’t know how strict the STB will be. I do believe [STB Chairman] Patrick Fuchs will do a very good job, but we don’t know if the STB is going to wait to add a fifth member and who is that fifth member?  

Another question is what BNSF may do, noted Hatch. With $350 billion in cash, he said it could take steps to outbid UP for NS, as many industry stakeholders felt that was a better pairing. While that could happen, he said it was unlikely, as CSX is not dramatically different from NS that it is worth a premium.