Union Pacific and Norfolk Southern Merger: A New Transcontinental Railroad and Potential Stock Winners

Union Pacific and Norfolk Southern are merging to form a transcontinental railroad covering 43 states and over 50,000 miles. This deal could positively impact train stocks as the combined network would provide more comprehensive coverage of the US. However, it is unclear which stocks will benefit the most from this merger.

Union Pacific Corporation (NYSE: UNP) and Norfolk Southern Corporation (NYSE: NSC) have announced a groundbreaking agreement to form America's first transcontinental railroad, spanning over 50,000 miles across 43 states. This strategic merger aims to revolutionize the U.S. supply chain, enhance manufacturing capabilities, and create new economic growth opportunities while preserving union jobs. The combined enterprise will have an estimated enterprise value of over $250 billion, with Norfolk Southern valued at $85 billion based on Union Pacific's unaffected closing stock price on July 16, 2025 [1].

The merger will see Union Pacific acquire Norfolk Southern in a stock and cash transaction, offering a 25% premium to Norfolk Southern's 30-trading day volume weighted average price on July 16, 2025. Norfolk Southern shareholders will receive 1.0 Union Pacific common share and $88.82 in cash for each share of Norfolk Southern. This deal implies a total enterprise value of $85 billion for Norfolk Southern, and the combined company will have a strong balance sheet with a Debt to EBITDA ratio of approximately 3.3x [1].

The Union Pacific Transcontinental Railroad will significantly impact the U.S. freight industry by offering more comprehensive coverage and faster, more reliable service. The combined network will reduce transit times, eliminate interchange delays, and open new routes, making it more competitive with Canadian railroads. This could lead to a significant increase in U.S. freight volume and job creation in various regions, including the Ohio Valley and across the Mississippi River [1].

The merger also promises to enhance international trade opportunities by providing access to 100 ports and 10 international interchanges. This will allow U.S.-made goods to reach global markets more efficiently, boosting the economy and creating new job opportunities [1].

From a financial perspective, the combined company is expected to generate significant value for shareholders. The transaction is expected to be accretive to Union Pacific's adjusted EPS per share in the second full year after closing and rising thereafter. The combined company is projected to have revenues of approximately $36 billion, EBITDA of approximately $18 billion, an operating ratio of 62%, and free cash flow of $7 billion based on 2024 results [1].

The merger is subject to review and approval by the Surface Transportation Board (STB), with the companies aiming to file their application within six months. The transaction is expected to close by early 2027, pending regulatory approval and customary closing conditions [1].

In summary, the Union Pacific and Norfolk Southern merger represents a significant milestone in the U.S. freight industry. The combined network promises to enhance supply chain efficiency, boost economic growth, and create new job opportunities. However, the impact on individual stock prices remains to be seen, as the market will closely monitor the regulatory process and the combined company's performance.

References:
[1] https://www.up.com/press-releases/growth/norfolk-southern-transcontinental-nr-250729