Union Pacific, the most profitable freight railroad in the United States, on Thursday said that it was in talks to merge with Norfolk Southern, another freight giant.
Such a deal would for the first time create a single network connecting the East and West Coasts, and perhaps speed up journey times for rail customers. But it would also reduce competition in an already concentrated industry.
In a news release, the companies said they were “engaged in advanced discussions regarding a potential business combination,” adding, “there can be no assurances as to whether an agreement for a transaction will be reached.”
Freight railroads have lost much business to trucks in recent decades. A tie-up of Union Pacific and Norfolk Southern may create opportunities to win new business.
When asked on an analyst call on Thursday if a merger would disrupt Union Pacific’s performance, Jim Vena, the company’s chief executive, said, “If you stand still, you get left behind.”
The timing may be ripe for a Union Pacific and Norfolk Southern merger, as the Trump administration has started to pursue deregulation in the rail industry.
“This is an opportunity to create the nation’s first true transcontinental railroad,” said Jason Seidl, a stock analyst who covers freight industries at TD Cowen, “I am sure the president would love to tout a pro-business merger that created something historic.”
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.
Moving freight on a single railroad spanning the country could be quicker than the current system, in which the goods have to move from one railroad to another.
But because the merger would reduce the number of large railroads, it may face resistance from the railways’ customers, which transport goods like coal, chemicals, manufacturing parts and shipping containers. A merger will leave them with less choice between railroads, making it harder to bargain for better rates.
And sprawling rail operations can be hard to integrate, said Dan Cupper, the editor of Railroad History, the journal of The Railway and Locomotive Historical Society. He noted that Union Pacific bungled its merger, in 1996, with Southern Pacific.
“There are cautionary tales why regulators have been careful about mergers,” Mr. Cupper said.
And some noted that the railroads don’t need to merge to improve connections between Eastern and Western networks.
“Expand your network through actual investment, rather than by trying to expand your network by taking out another one,” said Erik Peinert, an assistant professor of political science at Boston University who has studied monopolies.
Opponents and supporters of the deal will be able to make themselves heard at the Surface Transportation Board, which regulates rail and approves mergers.
Right now, though, the board is evenly split between two Democratic appointees and two Republican. A fifth board member, to be appointed by President Trump, may not be installed for many months, which could delay the proposed merger.
The board took nearly 17 months to approve the merger, in 2023, of Canadian Pacific, a large Canadian railroad, and Kansas City Southern, a medium-size American railroad, and it demanded extended oversight of the combined operations.
Even if the board agrees to the merger of Union Pacific and Norfolk Southern, it may demand that the two companies agree to measures to prevent them from exploiting their combined power. That could make the deal less attractive to investors and management, said Tony Hatch, a veteran rail analyst at ABH Consulting.
The combined Union Pacific and Norfolk Southern network would have nearly 90,000 miles of track, putting it far ahead of BNSF, the country’s second most profitable freight railroad, which has around 55,000 miles. Combined, Union Pacific and Norfolk Southern had over $9 billion in profit last year.
Union Pacific, based in Omaha, has over 32,000 employees, and Norfolk Southern, with headquarters in Atlanta, has nearly 20,000. At both railroads, around four-fifths of the work force belongs to a union.
In February 2023, a Norfolk Southern train carrying hazardous chemicals derailed in East Palestine, Ohio, forcing the evacuation of hundreds of residents and upending life in the town for months. Its chief executive at the time, Alan H. Shaw, came under scrutiny in Congress and from regulators. In September, Norfolk Southern terminated Mr. Shaw for having an affair with the company’s chief legal officer.
Mr. Vena, who worked for over 40 years at Canadian National, a large Canadian freight rail company, has been chief executive of Union Pacific for nearly two years.
Peter Eavis reports on the business of moving stuff around the world.
The post Union Pacific in Talks to Merge With Norfolk Southern appeared first on New York Times.
