Union Pacific and Norfolk Southern reach $85 billion merger deal

Union Pacific and Norfolk Southern today announced an $85 billion deal to tie their networks together and create the first U.S. transcontinental railroad.

The merged company — which will be called Union Pacific — will transform the U.S. supply chain and economy, strengthen domestic manufacturing, and preserve all union jobs, the railroads said.

UP will acquire NS in a stock and cash transaction that values NS at $320 per share, a 25% premium. The combined company would have an enterprise value of more than $250 billion. The railroads said the merger would create $2.75 billion in annual synergies within three years, through a combination of $1.75 billion in revenue growth and $1 billion in cost savings.

“Railroads have been an integral part of building America since the Industrial Revolution, and this transaction is the next step in advancing the industry,” UP Chief Executive Jim Vena said. “Imagine seamlessly hauling steel from Pittsburgh, Pennsylvania to Colton, Calif., and moving tomato paste from Heron, Calif., to Fremont, Ohio. Lumber from the Pacific Northwest, plastics from the Gulf Coast, copper from Arizona and Utah, and soda ash from Wyoming. Right now, tens of thousands of railroaders are moving almost everything we use. You name it, and at some point, the railroad hauled it.”

The railroad will stretch 52,215 route miles, with track winding through 43 states from the East Coast to the West Coast and serving around 100 ports.

The combined company will deliver faster, more comprehensive freight service to U.S. shippers by eliminating interchange delays, opening new routes, expanding intermodal services, and reducing distance and transit time on key rail corridors, the railroads said.  The merged Union will shift freight to rail, reducing congestion and wear and tear on taxpayer funded highways, they added.

“Norfolk Southern, like Union Pacific, is a railroad integral to the U.S. economy, with a storied 200-year legacy of serving customers across 22 states in the eastern half of the nation,” NS CEO Mark George said in a statement. “Our safety, network, and financial performance is among the best we’ve had as a company, as is our customer satisfaction. And it is from this position of strength that we embark on this transformational combination. We are confident that the power of Norfolk Southern’s franchise, diversified solutions, high-quality customers and partners, as well as skilled employees, will contribute meaningfully to America’s first transcontinental railroad, and to igniting rail’s ability to deliver for the whole American economy today and into the future. Union Pacific is a true partner that shares our belief in rail’s ability to deliver for all stakeholders simultaneously, and we are excited for our future together.”

Vena, who will be CEO of the combined railroad, invoked President Abraham Lincoln, who created the Union Pacific in 1862 with the signing of The Pacific Railroad Act.

“This combination is transformational, enhancing the best freight transportation system in the world – it’s a win for the American economy, it’s a win for our customers, and it’s a win for our people,” Vena said. “It builds on President Abraham Lincoln’s vision of a transcontinental railroad from nearly 165 years ago and advances our Safety, Service and Operational Excellence Strategy. I am confident this historic transaction will enhance competition to benefit customers, communities, and employees while delivering shareholder value.”

Creating the transcontinental version of Union Pacific is overwhelmingly in the public interest, the railroads said, and will enhance competition, consistent with the test that will be applied in the review of the transaction by the Surface Transportation Board.

The companies expect to file their application with the STB within six months, in which the companies will describe how the combined rail network will provide safer, faster, and more reliable service and increased competition. A pre-filing notification of intent to file an application could come as soon as Wednesday, and is the first official step in the merger evaluation timeline.

Both eastern carrier CSX (NASDAQ: CSX), and reported possible merger partner, Fort Worth-based BNSF, had no comment.

“The intermodal freight supply chain thrives when it offers a competitive alternative to long-haul trucking,” said Anne Reinke, president and chief executive of the Intermodal Association of North America, in an email statement to FreightWaves. “It succeeds where there are strong efficiencies, a focus on growth, and a commitment to customer service. As this merger moves forward, we will be looking for these core values to be reinforced.”

Norfolk Southern and CSX serve the Port of Savannah, the fourth-busiest U.S. container port, which loads 42 intermodal trains per week. A spokesman for the Georgia Ports Authority said, “We are following the [merger] situation. It’s business as usual here at the port with our rail operations.”
The board of directors of both Union Pacific and Norfolk Southern unanimously approved the transaction, which is subject to STB review and approval within its statutory timeline, customary closing conditions, and shareholder approval.

The companies are targeting closing the transaction by early 2027. The deal includes a $2.5 billion reverse termination fee.

They do not plan to use a voting trust, a common maneuver in prior rail mergers that allows the shareholders of the target railroad to cash out while the deal is under regulatory review. The STB rejected a voting trust in Canadian National’s (NYSE:CNI) ill-fated attempt to acquire Kansas City Southern under the board’s tougher 2001 merger review rules.

The combined company will be headquartered in Omaha, Neb., which has long been UP’s home base. The NS headquarters in Atlanta will remain a core location over the long-term, with a focus on technology, operations, and innovation, among other priorities, the railroads said.

source : freightwaves