Union Pacific, a freight rail giant, announced on Tuesday that it had reached an agreement to acquire Norfolk Southern, another large railroad, in a deal worth $85 billion.
The merger would create the United States’ first coast-to-coast rail network and span some 50,000 miles across 43 states. But the deal would put around two-fifths of rail freight in the hands of one company, raising fears that it would reduce competition in a crucial industry.
Union Pacific, which operates west of the Mississippi River, and Norfolk Southern, whose tracks are mostly east of it, said the combined company would deliver freight faster by eliminating the need to switch railroads and opening new routes.
“This is a great, great merger for America. It opens up more options for shippers,” Jim Vena, chief executive of Union Pacific, said in an interview, referring to the companies that transport goods over rail.
Union Pacific is offering cash and stock to buy Norfolk Southern for $72 billion. Adding Norfolk Southern’s debt takes the company’s enterprise value to over $85 billion.
“It will make the railroads more efficient,” said Tony Hatch, a veteran rail analyst at ABH Consulting. “And it adds reliability, which is the biggest rail issue.”
The combined company will be called Union Pacific and have over 50,000 employees, four-fifths of them belonging to unions. On Tuesday, rail unions expressed concern that the merger might undermine safety on the combined railroad and threaten job security.
“This proposed merger may look impressive on paper but we’ve seen how consolidation often plays out in the real world,” Mike Baldwin, president of the Brotherhood of Railroad Signalmen, a rail union, said in a statement.
Mr. Vena said Union Pacific and Norfolk Southern had strong safety records and disputed that the merger might lead to a less safe railroad.
In an interview on Tuesday, Mark George, chief executive of Norfolk Southern, said he believed the unions would support the merger when they see that it will increase hiring.
“By coming together, we’re going to be able to get on a growth trajectory again, and that means more jobs,” he said.
The merger announcement comes two and a half years after a Norfolk Southern train carrying hazardous materials derailed in East Palestine, Ohio, upending life in the town for months. Mr. George said the remaining financial liabilities stemming from the accident would become the responsibility of the merged company.
Federal rail regulators will have to review Union Pacific and Norfolk Southern’s merger proposal to assess whether it undermines competition in an industry already dominated by a small number of companies.
Because the companies do not operate in each other’s regions, the tie-up would not reduce choice between railroads in those areas. Still, the companies together accounted for 43 percent of all rail freight movements last year, according to an analysis of regulatory carload data by Jason Miller, a professor of supply chain management at Michigan State University.
Union Pacific and Norfolk Southern are most likely betting that the Trump administration, already pushing deregulation in the rail industry, will approve the deal. On Tuesday, the companies said they hoped to complete the merger in early 2027.
Over the years, freight rail has lost business to trucking companies.
Customers have chosen trucks, even though they are more expensive, because they are quicker and more reliable. One of the big problems is that rail freight moving across the country has to be switched from one railroad to another in places like Chicago, where bottlenecks occur. Mr. Vena said that the merged railroad would be able to build trains at origin that don’t have to stop in Chicago.
Still, the two railroads’ customers — large companies that ship coal, cars, chemicals and shipping containers filled with consumer goods — will be concerned that the combined company will use its power to charge higher rates.
“It would cut off shippers from having options for transcontinental shipping,” said Erik Peinert, an assistant professor of political science at Boston University, who has studied monopolies.
The merger would cut the number of major freight railroads in the United States to five from six. Most of the freight, however, is carried by just four companies: Union Pacific, Norfolk Southern, CSX and Berkshire Hathaway’s BNSF. If BNSF and CSX were to also combine, as some analysts expect, nearly 90 percent of rail freight would be in the hands of two companies.
A spokeswoman for BNSF declined to comment but pointed to Warren Buffett’s denial last week that Berkshire had hired bankers from Goldman Sachs to assess a deal with CSX. On a call with analysts last week, CSX’s chief executive, Joseph Hinrichs, declined to comment on merger speculation.
The Surface Transportation Board, the regulator that approves rail mergers, can require that Union Pacific and Norfolk Southern take actions aimed at limiting their influence, like giving competitors the right to run trains on their merged network. Mr. Vena noted on Tuesday that Union Pacific has a track-sharing arrangement with BNSF in the Northwest.
Under its rules, the transportation board has to assess whether the merger enhances competition. The board is currently split between two Democratic appointees and two Republicans. A fifth board member, to be appointed by President Trump, may not be installed for many months.
Mr. Vena said he expected the transportation board to agree to the merger after assessing whether the deal was good for customers. “They’ll approve this, we’re very confident of this, or we wouldn’t have taken this step,” he said.
And some logistics experts said the threat to competition from rail mergers might not be as serious as it looked. Mr. Miller, the supply chain professor, said that even if the four largest railroads became two, they would still face serious competition from trucking, particularly for goods moved in containers. “They wouldn’t have much pricing power,” he said.
The merger would be a milestone in American railroading history. George Jay Gould, a powerful businessman, came close to creating a coast to coast railroad early in the last century, but the effort fell apart in the 1907 financial panic. Amtrak runs coast to coast but not all the way on its own tracks.
Peter Eavis reports on the business of moving stuff around the world.
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