News / UP-NS claim $250bn merger will create first US transcontinental railroad

UPDATED TO INCLUDE CONFERENCE CALL

It didn’t take long for rumours to become reality: Union Pacific (UP) and Norfolk Southern (NS) today announced they plan to form the first transcontinental railroad in the US, via a $250bn merger.

But the plan to “seamlessly connect over 50,000 route miles across 43 states linking the east and west coasts, approximately 100 ports and nearly every corner of North America”, will be a long time in the making, thanks to “mountains of regulatory risk” and likely challenges from unions.

Addressing investors during a conference call attended by The Loadstar, UP chief executive Jim Vena said: “This is a historic, transformative moment for our companies, customers and for our nation, generating significant value for stakeholders and customers. Building on Lincoln’s vision for a coast-to-coast railroad.

“Rail can form the backbone of the US economy. And by combining UP and NS, we will transform US supply chains and transport networks, making rail more cost effective and, by eliminating interchanges, speeding up the flow of freight.”

While not explicitly stating the environmental benefits the tie-up would bring, Mr Vena added that a single service could remove some 550 trucks from US roads, reducing both congestion on the nation’s highways and cutting the cost to US tax payers for road maintenance.

His opposite number at NS, Mark George, added: “This combination brings together two teams with a shared commitment to advancing our nation’s economy, connecting people, strengthening our communities and building a stronger, more competitive America.”

The details, as outlined by the new partners, will see UP offer stock and cash at $320 per share – a 25% premium on NS’s 30-day average price – giving NS an enterprise value of $85bn. 

To sell the plan to the unions, the railroads pledged: “Both railroads envision every union employee who wants a job in the combined company will have one”  

They added: “Beyond job security, expected rail volume growth will drive additional employment opportunities in towns and cities across the combined rail network. Non-union workers will have opportunities to grow as part of a larger, combined enterprise.” 

Smart TD, one of the biggest affected unions, had not issued a statement before this article was published. 

UP and NS also appealed to customers: “The combined company will deliver faster, more comprehensive freight service to US shippers by eliminating interchange delays, opening new routes, expanding intermodal services, and reducing distance and transit time on key rail corridors.  

“A more truck-competitive solution, the Union Pacific Transcontinental Railroad will decrease highway congestion, reducing wear and tear on taxpayer-funded roads. Today, Union Pacific and Norfolk Southern invest approximately $5.6bn annually in infrastructure, innovation, and network expansion.” 

However, there is a very long way to go in a regulatory environment set up to discourage mergers – despite the new ‘pragmatic’ head of the Surface Transportation Board, Patrick Fuchs . 

The 2023 merger of Canadian Pacific with Kansas City was very challenging, said CPKC CEO Kenneth Creel. 

At a conference in May, he said: “There’s always been an argument why a [transcontinental railroad] could make sense. But the arguments would have to be able to ignore the regulatory risk that is undeniably there.   

“I’m the only CEO in the industry that’s navigated that regulatory risk. And the standards we had to meet to get our deal approved pale in comparison to the standards that are untested in the new merger rules. 

“To create a network that not only protects competition but enhances competition, that protects service and enhances service; there is not a hill of regulatory risk to climb, there are mountains of regulatory risk.” 

But the railroads said: “Creating the Union Pacific Transcontinental Railroad is overwhelmingly in the public interest and will enhance competition, consistent with the test that will be applied in the review of the transaction by the Surface Transportation Board (STB). 

The companies expect to file their ‘application to merge’ with the STB within six months.

Mr Vena will lead the combined company and has pledged to stay in place for five years. Before completion, the two railroads will continue to be run independently.

“Three NS directors, including Mark George and Richard Anderson, are expected to join the UP board after completing the corporate governance process. 

“The combined company will be headquartered in Omaha, Nebraska. Atlanta, Georgia, will remain a core location for the combined organisation over the long-term, with a focus on technology, operations, and innovation, among other priorities.”

You can read the full PR here.