Union Pacific announces bid for Norfolk Southern to create transcontinental railroad

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OMAHA, Neb. (AP) — Union Pacific is seeking to buy Norfolk Southern in a $85 billion deal that would create the first transcontinental railroad in the U.S, and potentially trigger a final wave of rail mergers across the country.

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The proposed merger, announced Tuesday, would marry Union Pacific’s rail network in the West with Norfolk’s rails that snake across Eastern states.

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The nation was first linked by rail in 1869, when a golden railroad spike was driven in Utah to symbolize the connection of East and West Coasts. Yet no single entity has controlled that coast-to-coast passage that so many businesses rely on.

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The railroads said the tie-up would streamline deliveries of raw materials and goods across the country. The AP first reported the merger talks earlier this month a week before the railroads confirmed the discussions last week.

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Any deal would be closely scrutinized by antitrust regulators that have set a very high bar for railroad deals after previous consolidation in the industry led to massive backups and snarled traffic.

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But if the deal is approved, the two remaining major American railroads — BNSF and CSX — will face tremendous pressure to merge so they can compete. The continent’s two other major railroads _ Canadian National and CPKC — may also get involved.

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Union Pacific is offering $20 billion cash and one share of its stock to complete the deal. Norfolk Southern shareholders would receive one UP share and $88.82 in cash for each one of their shares as part of the deal that values NS at roughly $320 per share. Norfolk Southern closed at just over $260 a share earlier this month before the first reports speculating about a deal.

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Union Pacific’s stock rose slightly to $229.35 in premarket trading, while Norfolk Southern’s stock dipped more than 2% to $279.95.

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Union Pacific CEO Jim Vena, who has been championing a merger, said the deal could make it possible for lumber from the Pacific Northwest and plastics produced on the Gulf Coast and steel made in Pittsburgh to all reach their destinations more seamlessly.

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“Railroads have been an integral part of building America since the Industrial Revolution, and this transaction is the next step in advancing the industry,” Vena said.

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A combined Union Pacific and Norfolk would have an advantage because they won’t have to hand off shipments in the middle of the country anymore, enabling them to make deliveries more quickly and likely at a lower rate.

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U.S. railroads have already gone through extensive consolidation. There were more than 30 major freight railroads in the early 1980s. Today, six major railroads that handle the majority of shipments nationwide.

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Rival BNSF, owned by Berkshire Hathaway, has the war chest to pursue an acquisition of it chooses. CEO Warren Buffett is sitting on more than $348 billion cash and he may be interested in completing one last major deal before he gives up his role as chief exeucutive at the end of the year.