US rail merger could create first coast-to-coast freight service

Two of America’s largest railroad companies are set to combine in an $85bn (£63.8bn) deal that would create the first firm with a coast-to-coast freight rail network in the US.

Union Pacific said it had agreed to buy its smaller East Coast rival Norfolk Southern, establishing a $250bn colossus that will link 100 ports and 43 states along more than 50,000 miles of track.

Executives said they expected the merger would make freight shipping more efficient and help rail compete against other modes of transportation.

They said they were confident the transaction would be approved, despite potential concerns from customers and unions about job losses, higher prices and service disruptions.

The Biden administration was known for its sceptical view of big mergers. But the Trump administration is expected to take a looser regulatory approach.

“We would not have taken the step if we weren’t comfortable that we can deal with any of the issues that come forward,” Union Pacific chief executive Jim Vena told analysts on Tuesday.

The new company would be called Union Pacific Transcontinental Railroad and have its headquarters in Omaha, Nebraska.

The city, located in the middle of the country, is currently home to Union Pacific, a firm that traces its roots to the US civil war and is one of two companies that dominate freight rail service west of the Mississippi.

Norfolk Southern’s headquarters are in Atlanta, Georgia and it operates primarily in the eastern part of the US.

Executives said combining forces would allow them to cut a day or two off transit times for customers looking to ship goods across the country. They also argued the deal would reduce congestion on the tracks, as fewer cars are needed to transport the same volumes of goods.

“This isn’t just about being a bigger railroad. It’s about being a better railroad,” said Norfolk Southern chief financial officer Jason Zampi.

The two firms said they hoped to complete the deal by early 2027 and they expected to spend $2bn on integrating the two networks.

In a letter to staff, Mr Vena, who started his career as a brakeman, said he expected the deal to lead to job growth, assuring that it was the firms’ “intention to preserve Union Pacific and Norfolk Southern union jobs”.

Under the terms of the transaction, Norfolk Southern investors will receive $88.82 a share and a stake in the new company.

That implies a roughly $320 value per share – about 25% higher than the price seen before reports of a potential merger started to spread.

Norfolk Southern chief Mark George told analysts the deal was “making history”.

Although it has been possible to cross the US by rail since 1869, it has required dealing with multiple companies.

Amtrak, the US passenger rail company, also operates trains across the country, but often has to rely on tracks controlled by other companies.