UNION Pacific (UP) is to acquire fellow US Class 1 operator Norfolk Southern (NS), both parties have now confirmed, following a week of intense media speculation. The merger will create the first transcontinental railway in the United States, covering around 80,000 route-km in 43 states.

Under the terms of the agreement, UP will acquire NS in a stock and cash transaction. In a joint statement, the companies say that NS shareholders will receive, for every share of NS stock, one share of UP stock plus $US 88.85 in cash, implying a value for NS of $US 320 per share and representing a 25% premium on the average NS share price on July 16.

 “The value per share implies an enterprise value of $US 85bn for Norfolk Southern, resulting in the creation of a combined enterprise of more than $US 250bn,” the statement says.

UP will issue a total of approximately 225 million shares to NS shareholders. The combined business will have a strong balance sheet and debt to Ebitda of approximately 3.3x. Based on 2024 results, the pro-forma combined company would have a revenue of approximately $US 36bn, Ebitda of around $US 18bn, an operating ratio of 62%, and free cash flow of $US 7bn.

The proposed transaction, expected to be filed with the Surface Transportation Board (STB) within six months, will undergo a 15-month review process and is likely to close by early 2027. The combined company will be headquartered at UPs base in Omaha, Nebraska. The current NS headquarters in Atlanta, Georgia, will remain a core location for the combined business, focusing on technology, operations and innovation.

UP CEO, Jim Vena, will become CEO of the merged company, and, according to the statement, “has committed his intent to remain at Union Pacific for at least the next five years.”

The existing UP and NS management teams will continue to independently run each company until the transaction is completed. At this stage, three NS directors, including CEO, Mark George, and independent board chairman, Richard Anderson, are expected to join the UP board.

New name

The combined business has been dubbed Union Pacific Transcontinental Railroad (UPTR), but this name has not been officially confirmed. Both companies acknowledge that combining UP and NS will not be easy, but say that their cultures are closely aligned.

UP and NS say that the merged company will deliver faster, more comprehensive freight service to US shippers by eliminating interchange delays, opening new routes, expanding intermodal services, and reducing distance and transit time on key rail corridors. UP and NS state that they “envision every union employee who wants a job in the combined company will have one.”

“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 says. “This combination is transformational, enhancing the best freight transportation system in the world.

“It’s a win for the economy, it’s a win for our customers, and it’s a win for our people. I am confident this historic transaction will enhance competition to benefit customers, communities, and employees while delivering shareholder value.”

Morgan Stanley and Wells Fargo are acting as financial advisers to UP. BofA Securities is acting as financial adviser to NS.