Union Pacific to Acquire Norfolk Southern in $85bn Deal, Creating First Transcontinental Railroad in US

Union Pacific has agreed to acquire Norfolk Southern in a $85bn deal, creating the first modern transcontinental railroad in the US. The combined entity will have over 50,000 route miles and 100 ports, generating new avenues for economic growth and workforce opportunities while safeguarding union jobs. The acquisition values Norfolk Southern at $320 per share, a 25% premium over its recent average price. The transaction is subject to Surface Transportation Board review and shareholder approval, with a target closing by early 2027.

Title: Union Pacific and Norfolk Southern's $85 Billion Merger: Transforming the U.S. Supply Chain

Union Pacific Corporation (NYSE: UNP) has agreed to acquire Norfolk Southern Corporation (NYSE: NSC) in a $85 billion deal, marking a significant milestone in the U.S. freight rail industry. The acquisition, which values Norfolk Southern at $320 per share, represents a 25% premium over its recent average price, will create the first modern transcontinental railroad in the U.S. [3]

The combined entity, expected to close by early 2027, will have over 50,000 route miles and access to approximately 100 ports, spanning 43 states from the East Coast to the West Coast. This merger aims to transform the U.S. supply chain, unleash the industrial strength of American manufacturing, and create new sources of economic growth and workforce opportunities while preserving union jobs [3].

Canadian National (CN) has expressed support for the merger, citing the potential for greater collaboration between railways and the creation of long-term value for shareholders. However, the merger faces opposition from groups like the American Chemistry Council (ACC), which has raised concerns about reduced competition and potential negative impacts on manufacturing [1].

The Surface Transportation Board (STB) is currently reviewing the merger, with varying opinions expressed by U.S. senators. While some senators, such as Nebraska Republican senators Deb Fischer and Pete Ricketts, support the merger due to its economic impacts, others, like U.S. Sens. Roger Marshall (R-Kan.) and Tammy Baldwin (D-Wis.), have urged the STB to keep the best interests of rail shippers and consumers in mind [1].

Senior Bond Analyst Jay Cushing of researcher Gimme Credit estimates that the deal will produce combined revenue of $36.5 billion, operating earnings (EBITDA) of close to $18 billion, an operating ratio of 61%, and free cash flow of $2.6 billion. Cushing also noted that the merger would generate $2.75 billion in annualized synergies, with management targeting a net leverage of 2.8x by 2028 [1].

Union Pacific and Norfolk Southern submitted a pre-filing with the STB on Wednesday, officially notifying the competition regulator of their intent to merge. The filing, which marks the first time tougher merger rules written in 2001 will be tested, highlights the transformative potential of the merger and the benefits it promises for shippers, consumers, and the U.S. economy [2].

The merger is expected to generate significant revenue and cost synergies, but it also raises debt levels initially. The combined company aims to grow free cash flow from $7 billion in 2024 to $12 billion by 2029, driven by synergies and 10% base-line growth [1].

References:
[1] https://www.freightwaves.com/news/while-shippers-cite-concerns-rival-railroad-sees-value-in-mega-merger
[2] https://www.freightwaves.com/news/union-pacific-norfolk-southern-submit-merger-pre-filing
[3] https://investor.unionpacific.com/news-releases/news-release-details/union-pacific-and-norfolk-southern-create-americas-first