Union Pacific Railroad is in early-stage talks with rival Norfolk Southern for a nearly $200bn merger that would create a transcontinental US railroad giant, according to people familiar with the matter.
Both parties have engaged advisers and begun to sketch out a plan of how a deal could take shape. A big part of getting any such deal over the finish line would be convincing US President Donald Trump’s administration of its merits.
Any combination between the two freight railway operators would face intense regulatory scrutiny, in particular from the Surface Transportation Board, the federal freight railroad regulator — headed up by Republican appointee Patrick Fuchs.
The talks are preliminary and could still fall through, two people said. Union Pacific and Norfolk Southern declined to comment.
The proposed deal would face a more difficult path to approval than previous railway mergers because of its size.
In 2023, Canadian Pacific Railway combined with Kansas City Southern in a $31bn merger, despite former president Joe Biden’s broader crackdown on large deals.
But that merger consolidated two smaller so-called Class 1 railroad carriers, whereas a combination of Union Pacific and Norfolk Southern would bring together the biggest and fourth-biggest operators by revenues.
In 2016, Canadian Pacific made a $28.4 hostile takeover approach for Norfolk Southern but after five months the deal fell through when Norfolk Southern’s board rejected the offer as too low.
Democratic Senator Elizabeth Warren previously cited the 2023 East Palestine, Ohio, train derailment, in which seven people died on a Norfolk Southern track, as an argument against the Canadian Pacific-Kansas City Southern tie-up.
Union Pacific operates more than 32,000 miles of railroad track, dominating the 23 states in the western two-thirds of the US. Norfolk Southern operates nearly 20,000 miles of tracks, clustered mainly in the Midwest and across the eastern seaboard.
The combined company would generate $36.4bn in revenues, based on last year’s performance. It would have a combined market value of roughly $197bn, as of their closing prices on Thursday. Union Pacific’s market capitalisation stood at $136bn, while Norfolk Southern’s was $60.8bn.
Shares in Norfolk Southern jumped by 4 per cent in after-hours trading after the Wall Street Journal first reported on the deal talks. Most previous railway megamergers have been largely stock-based transactions.
Union Pacific chief executive Jim Vena told an investor conference in June that further consolidation in the sector would be positive.
“Bottom line is, do I, Jim Vena, think that a merger would be beneficial for the country? Absolutely,” he told investors.
“I think it would be fantastic for our customers, fantastic for competition, fantastic politically, and I think the regulators would have to deal with it, if somebody went forward,” he said, adding that “you also have to understand what the rules are in place”.
The departure of Norfolk Southern’s chair Claude Mongeau, who left the role earlier this month, would also potentially ease the path to a deal. His replacement, former Amtrak chief executive Richard Anderson, would likely be more receptive to a takeover approach, one person said.
Norfolk Southern has faced a tumultuous few years. Its previous chief executive, Alan Shaw, was fired last year after admitting to a consensual relationship with chief legal officer Nabanita Nag. The railroad giant has also ceded four board seats to independent directors approved by activist hedge fund Ancora. The company estimates it will spend more than $1bn to deal with the aftermath of the East Palestine railroad disaster.
