Evaluating the Union Pacific-Norfolk Southern Merger: Antitrust Risks, Market Concentration, and Shareholder Value Trade-Offs

The proposed $85 billion merger between Union Pacific and Norfolk Southern, aimed at creating the first coast-to-coast freight railroad in the United States, has ignited a fierce debate over antitrust risks, market concentration, and shareholder value. As the Surface Transportation Board (STB) weighs the deal's compliance with the 2001 merger rules-requiring that it "enhance competition"-the transaction's potential to reshape the U.S. freight logistics landscape remains uncertain. This analysis examines the regulatory, economic, and market dynamics at play, drawing on recent data and stakeholder perspectives.

Antitrust Risks and Regulatory Scrutiny

The STB's evaluation hinges on whether the merger would reduce competition in a market already dominated by a handful of players. Critics argue that the deal would shrink the number of major U.S. freight railroads from six to five and cut the number of primary competitors from four to three. This consolidation raises concerns about monopolistic tendencies, with opponents-including rail unions, agricultural groups, and the American Chemistry Council-warning of higher shipping costs, reduced service quality, and stifled innovation.

The STB's 2001 merger guidelines require that any transaction must demonstrate net benefits to shippers and the public. However, the agency faces a challenging balancing act: while supporters claim the merger would streamline operations and reduce interchange delays, critics highlight precedents like the 2016 CPKC merger, which led to rate hikes and service disruptions. The STB's decision, expected by 2027, will likely depend on its assessment of whether the combined entity's efficiency gains outweigh the risks of reduced competition.

Market Concentration and the Herfindahl-Hirschman Index (HHI)

Though specific Herfindahl-Hirschman Index (HHI) values for the U.S. freight rail industry in 2023–2025 are not publicly available, the market's structure suggests moderate concentration. Seven Class I railroads-BNSF, Canadian National, Canadian Pacific Kansas City, CSX, Kansas City Southern, Norfolk Southern, and Union Pacific-dominate the sector, collectively controlling over 80% of the market. The proposed UP-NS merger would further consolidate this power, reducing the number of major players and potentially elevating the HHI into the "highly concentrated" range (above 1,800).

Shareholder Value and Equity Market Reactions

Despite regulatory uncertainty, the merger has garnered strong shareholder support. Nearly 99% of Union Pacific and Norfolk Southern shareholders approved the deal, reflecting confidence in its strategic rationale. Equity markets have also responded positively: Union Pacific's stock rose 0.22% to $221.96 following the merger announcement, while Norfolk Southern's shares saw similar gains.

Proponents argue that the merger would unlock $2.75 billion in annualized synergies, enhance intermodal offerings, and reduce transit times on key corridors. These benefits are expected to strengthen the U.S. supply chain and improve competitiveness against trucking. However, the long-term value proposition remains contingent on regulatory approval. If blocked, the companies face the risk of stranded assets and reputational damage, as seen in past merger disputes.

Conclusion: A Delicate Balance

The UP-NS merger represents a pivotal moment for U.S. freight logistics. While the transaction promises operational efficiencies and expanded service capabilities, it also risks exacerbating market concentration and antitrust concerns. The STB's decision will hinge on its ability to weigh these competing interests, ensuring that the public interest is served without stifling innovation. For investors, the key takeaway is that regulatory outcomes will significantly shape the merger's long-term value, making it imperative to monitor the STB's proceedings and stakeholder lobbying efforts.

[1] Proposed merger between Union Pacific and Norfolk Southern [2] 2 big rail unions oppose $85B Union Pacific-Norfolk Southern merger over safety and cost concerns [3] CPKC 2Q25: 'Strong Growth, 2H25 Momentum'; UP+NS Perspective [4] Giant Freight Railroad Merger Hinges on Monopoly Concerns [5] United States Rail Freight Transport Market [6] Herfindahl-Hirschman Index - Antitrust Division [7] United States Rail Freight Transport Market Size and Share [8] Economic Data [9] Norfolk Southern Shareholders Approve Transaction with Union Pacific [10] Union Pacific Shareholders Approve Norfolk Southern Merger [11] Union Pacific and Norfolk Southern to Create America's First Transcontinental Railroad [12] Benefits For Shareholders | Union Pacific & Norfolk Southern