Union Pacific Corp agreed to acquire Norfolk Southern Corp in a cash-and-stock transaction valued at $85 billion.
The deal will create a transcontinental rail giant, linking Union Pacific’s extensive western US network with Norfolk Southern’s East Coast routes. If approved, the deal would be the largest-ever buyout in the industry.
Deal details and valuation
Norfolk Southern shareholders will receive one Union Pacific share and $88.82 in cash for each Norfolk share. Union Pacific will issue about 225 million shares to Norfolk Southern investors, representing 27% stake in the combined company.
The agreement, which the companies aim to close by early 2027, implies a value of $320 a share for Norfolk, or about $72 billion on an equity basis. That would represent a roughly 23% premium to Norfolk Southern’s stock before the first reports of a potential deal this month.
Stock market reaction
The shares of Norfolk, which also reported quarterly results on Tuesday, declined by 2.6% as of 7:44 am before regular trading in New York.
Union Pacific rose less than 1%. At current levels, the companies would have a combined market value of about $200 billion.
Regulatory hurdles
Despite the boards of both companies approving the transaction, the deal faces significant regulatory scrutiny, which is deemed common in rail mergers. Historically, rail mergers have been difficult to consummate given the inhospitable regulatory environment.
The deal will raise competitive pressure on rivals, including CSX Corp. and Berkshire Hathaway Inc.’s BNSF to potentially pursue deals of their own to keep pace.
The companies announced that they were in advanced talks on July 24. That followed weeks of speculation that the railroad industry was headed for another round of consolidation, fuelled by the assumption that President Donald Trump’s administration could take a more amenable view to major deals than previous administrations.
The agreement is structured without a voting trust and includes a $2.5 billion break fee in the event it doesn’t proceed.
Advisors behind mega deal
BofA Securities is serving as financial adviser to Norfolk Southern, while Wachtell Lipton Rosen & Katz is legal adviser, with Sidley Austin providing legal advice on regulatory matters.
Morgan Stanley & Co. and Wells Fargo are serving as financial advisers to Union Pacific. Skadden Arps Slate Meagher & Flom is serving as legal adviser to Union Pacific, with Covington & Burling providing legal advice on regulatory matters.
Competition on the rise
Even though railroads carry about 28% of all US freight and 40% of the country’s long-haul cargo, the industry’ growth has remained stagnant amid rising competition from trucking.
The Trump administration’s antitrust enforcers must sign off on any combination to further concentrate an industry that’s been winnowed down to just six so-called Class 1 freight railroads.
The last major deal was closed in 2023, when Canadian Pacific acquired Kansas City Southern in a transaction valued at about $31 billion.
The latest merger comes a year after a dramatic activist fight at Norfolk Southern and an ouster of its former CEO.
