BNSF's Competitive Edge at Risk in Potential Norfolk Southern Merger

Warren Buffett's BNSF rail unit may face operational disadvantages if Norfolk Southern merges with Union Pacific. While Buffett is unlikely to spark a bidding war, a successful deal between the two would create operational challenges for BNSF.

The proposed merger between Union Pacific and Norfolk Southern, which would create America’s first transcontinental railroad, could have significant implications for Warren Buffett's BNSF rail unit. While the deal is expected to bring operational efficiencies and economic benefits to the combined entity, it may present operational challenges for BNSF [1].

Union Pacific and Norfolk Southern, two of North America’s largest Class I freight railroads, announced a stock and cash transaction on July 29, 2025, with a value for Norfolk Southern of $320 per share, representing a 25% premium to its 30-trading day volume weighted average price. The merger is expected to create a combined enterprise valued at over $250 billion [2].

The Union Pacific Transcontinental Railroad will connect over 50,000 route miles across 43 states from the East Coast to the West Coast, linking approximately 100 ports and nearly every corner of North America. This seamless connection could lead to operational efficiencies, reduced transit times, and enhanced service reliability for shippers [1].

However, the success of this merger may create operational challenges for BNSF. The proposed merger aims to eliminate interchange delays and open new routes, which could reduce competition in the rail industry. BNSF, currently one of the six Class I freight railroads in North America, may face operational disadvantages as a result of the reduced competition [2].

BNSF transports about 1.3 billion bushels of grain annually, with exports accounting for 30% to 40% of those shipments. The railroad serves most of the US major grain markets, connecting the Midwest and Western production areas to export terminals in the Pacific Northwest and Gulf Coast [2]. If the Union Pacific-Norfolk Southern merger succeeds, it could potentially alter the competitive landscape for grain transportation, impacting BNSF's operations and market share.

Moreover, the merger could lead to a more integrated and efficient rail network, potentially reducing the need for interchange services. This could impact BNSF's operations, as it relies on interchange traffic to connect shippers with different rail networks [2].

Despite these potential operational challenges, Buffett is unlikely to spark a bidding war to counter the Norfolk Southern-Union Pacific merger. The proposed deal is expected to be accretive to Union Pacific’s adjusted EPS per share in the second full year after closing and rising to high single-digit accretion thereafter [2].

In conclusion, while the proposed merger between Union Pacific and Norfolk Southern presents operational challenges for BNSF, it also offers significant economic benefits and operational efficiencies. The combined entity is expected to transform the U.S. supply chain and create new sources of economic growth and workforce opportunity. The successful implementation of this merger could lead to a more competitive and efficient rail industry, potentially benefiting shippers and consumers alike.

References:
[1] https://www.magnoliareporter.com/news_and_business/local_business/article_e05b2e75-d9f1-405a-a480-0ce8e1380797.html
[2] https://www.world-grain.com/articles/21681-union-pacific-agrees-to-acquire-norfolk-southern