US Class 1 Union Pacific (UP) is at an early stage of discussions to acquire fellow freight railway Norfolk Southern (NS), according to The Wall Street Journal. “There are no guarantees they will result in any deal or receive regulatory sign-off,” the US news outlet reported on June 17, suggesting that another party could come forward.
UP operates 52,614 route-km in 23 states and has a market value of roughly $US 140bn, while NS operates around 31,400 route-km across 22 states and has a value of approximately $US 60bn. A merger would create the largest Class 1 in the US.
UP told IRJ’s sister publication Railway Age that it “does not comment on rumour and speculation.” NS did not immediately respond to a request for comment.
According to The Wall Street Journal, UP CEO, Jim Vena, “has spoken publicly in recent months about the benefits of a transcontinental railroad,” improving service and “smooth[ing] out current delays at interchanges.”
A bid to merge UP and NS would come under significant regulatory scrutiny, including from the Surface Transportation Board, which adopted more stringent merger rules in 2001. They require applicants to provide evidence that competition would be improved and detail the “downstream effects.” of the merger
Any proposal would also be scrutinised by the Department of Justice, railway unions, national passenger operator Amtrak, and investors.
The merger in 2023 of Canadian Pacific (CP) and Kansas City Southern (KCS), which created the first single freight railway connecting Canada, the US and Mexico, was considered under the pre-2001 merger rules, due to a waiver granted to KCS.
Investment bank TD Cowen issued an industry update which states: “We believe Union Pacific will likely make a bid for Norfolk Southern. We believe any transaction would result in the rail industry going from four US Class 1s to two.”
TD Cowen says that, with the exception of corporate functions, an end-to-end merger is unlikely to result in job losses, although unions would expect improvements to terms and conditions of employment. “Getting the unions onboard will be crucial to getting a blessing from the White House,” it says.
