The largest railway merger in American history is finalized: Union Pacific acquires Norfolk Southern Railway for $85 billion

The American railway industry is expected to witness the largest merger in history.

On Tuesday, July 29, Union Pacific Corporation announced its agreement to acquire Norfolk Southern Corporation for approximately $72 billion in cash and stock transactions. After the merger, the combined market value will approach $200 billion (based on current stock prices), forming the largest railway giant in the United States, spanning across the North American continent, with a total route length exceeding 50,000 miles, covering 43 states . This transaction is expected to become the largest merger in the history of the railway industry .

According to the statements released by both parties, Norfolk Southern shareholders will receive 1 share of Union Pacific stock, plus $88.82 in cash, in exchange for each share of Norfolk Southern stock. This translates to an acquisition price of $320 per share, approximately 23% higher than before the acquisition news was disclosed. Union Pacific will issue approximately 225 million new shares to Norfolk Southern shareholders, accounting for 27% of the combined company's shares. The transaction is expected to be completed in early 2027.

Additionally, Norfolk Southern also released its second-quarter financial report. The adjusted earnings per share were $3.29, slightly below Wall Street expectations, with quarterly revenue of $3.1 billion, roughly in line with market expectations. On Tuesday, Norfolk Southern's stock fell about 3.7% during trading, while Union Pacific's stock dropped over 4%.

Connecting East to West and South to North, creating a truly "Pan-American" railway network

The key to this merger lies in network complementarity. Union Pacific primarily covers the western United States, while Norfolk Southern focuses on the eastern coastal cities.

The merger will nearly cover all major cities and industrial corridors in the United States, becoming a truly "national railway network," and will be the first railway operator in U.S. history capable of transporting goods directly from the Pacific coast to the Atlantic coast via its own rail network.

Although regulatory approval remains a major obstacle for mergers in the railway industry, it also puts pressure on other railway companies like CSX and BNSF, owned by Warren Buffett, potentially triggering a new wave of industry mergers.

While railway transportation still accounts for 28% of freight volume and 40% of long-distance transport in the United States, in recent years, the growth of the railway industry has stagnated due to increased competition from truck transportation, coupled with high fuel and labor costs.

Union Pacific CEO Jim Vena stated in a letter to employees, "Achieving the vision of a transcontinental railway for Union Pacific is not easy. We anticipate that this merger will lead to job growth and commit to retaining union positions at both Union Pacific and Norfolk Southern."

Additionally, Jim Vena will serve as the CEO of the merged company and has committed to at least a five-year term.

Merger still requires regulatory approval

Although this transaction has already been approved by the boards of both companies, there remains significant uncertainty about whether it can ultimately be completed, as the merger still requires approval from the Surface Transportation Board (STB) Although the Trump administration is currently in power and the regulatory attitude may be relatively lenient, the STB has always been very cautious about mergers and acquisitions in the railroad industry, with many transactions historically rejected or accompanied by harsh conditions. If this case is denied, it will trigger a $2.5 billion "breakup fee."

The last major merger in the railroad industry was Canadian Pacific Railway's acquisition of Kansas City Southern for $31 billion, which took nearly two years to approve.

It is worth noting that the current chairman of the STB, Patrick Fuchs, was appointed by Trump and is seen as relatively supportive of railroad consolidation, which gives the market a glimmer of hope for the success of the merger.

Previously, there have been multiple rounds of speculation in the market suggesting that the railroad industry is about to enter a new wave of consolidation, as it is generally expected that the Trump administration is more inclined to support large merger transactions compared to previous administrations.

Bloomberg analyst Lee Klaskow believes that this deal is far from complete, and even under the pro-business Trump administration, it will still face strict scrutiny from the Transportation Regulatory Board and other regulatory agencies. Even if it is ultimately approved, it is highly likely to come with concession conditions.

In addition, this merger is also mixed with some personnel turmoil.

Norfolk Southern experienced a proxy battle with activist shareholders last year. The company was nearly taken over by activist investor Ancora, and the board was ultimately "forced" to accept Ancora gaining three seats on the board.

Subsequently, CEO Alan Shaw was reported to have had an office romance with the company's legal chief and was directly dismissed by the board