MW M&A chatter swirls around Union Pacific and Norfolk Southern. This is why a deal makes sense.

By James Rogers

Norfolk's Wabash line could be a 'real benefit' for Union Pacific, as it could help bypass eastbound traffic around Chicago, Raymond James says

Merger talk is swirling around Union Pacific Corp. and Norfolk Southern Corp., in a deal that could create a railroad mega-carrier and a huge transcontinental network spanning the U.S.

The Wall Street Journal reported that Union Pacific (UNP) is in talks to acquire Norfolk Southern $(NSC.AU)$. Semafor reported that Union Pacific has hired investment bankers at Morgan Stanley (MS) to look into the acquisition of a rival.

Union Pacific and Norfolk Southern declined to comment. Morgan Stanley has not yet responded to a request for comment.

Union Pacific has extensive operations in the western U.S., while much of Norfolk Southern's network spans the east of the country. Bringing the two companies together would create a vast transcontinental railroad spanning the U.S. from coast to coast.

Raymond James analyst Patrick Tyler Brown wrote that, while a merger between Union Pacific and rival CSX Corp. $(CSX.AU)$ would be the best fit, there are unique benefits to a deal between Union Pacific (UNP) and Norfolk Southern.

The railroads, the analyst explained, meet in Chicago, St. Louis, Kansas City, and New Orleans, and also have the two best Kansas City to St. Louis routes, which he describes as candidates for a likely divestiture.

"The real benefit to UNP could be the old Wabash line (an old Class I railroad bought in 1964 by the Norfolk & Western railway which was ultimately purchased by NSC in 1982)," the analyst wrote. "Importantly, linking the UNP to the Wabash may afford UNP the ability to bypass east coast bound traffic around Chicago." This, he added, would improve fluidity, service, and lower costs.

A deal between Union Pacific and Norfolk Southern would also create a railroad mega-carrier. Omaha, Neb.-based Union Pacific has a market cap of $135.8 billion at current prices, while Atlanta-based Norfolk Southern's market cap is $62.2 billion.

Norfolk Southern's stock rose 2.2% in morning trading, while Union Pacific shares slipped 0.1%.

Union Pacific Chief Executive Jim Vena has been vocal about the benefits of railroad M&A, both for his company and for the U.S. Speaking at the Wells Fargo Industrials Conference last month, Vena was asked about potential M&A. "Bottom line is, do I, Jim Vena, think that a merger would be beneficial for the country? Absolutely. It would be beneficial for the country," he said, according to a FactSet transcript. "Second, would it be beneficial for our customers? Absolutely."

"Would it be beneficial for how we look at some of the U.S. forces and products that we move across the country? Absolutely," he added. The CEO also noted that the regulatory aspects of possible M&A are "not easy."

In a note released Thursday, TD Cowen analyst Jason Seidl wrote that one transcontinental-railroad merger would likely result in a subsequent combination between the remaining U.S. Class I railroads. "UNP appears to be laying the ground work to pursue a merger ahead of the announcement of a 5th [Surface Transportation Board] member whose support will be necessary to sanction a merger, though timing of this is unclear," he added.

The Surface Transportation Board is the federal agency that regulates surface transportation, primarily rail freight. A Class I railroad is defined as any carrier earning revenue greater than $1.074 billion, according to the STB.

On Thursday, Bank of America upgraded CSX to buy from neutral and raised its price target for the Jacksonville, Fla.-based carrier to $42 from $34. Bank of America also raised its Norfolk Southern price target to $305 from $290 and reiterated its buy rating for the company.

Shares of CSX, which has a market cap of $66 billion, were up 1.8% in morning trading. The other U.S.-based Class I carrier, Burlington Northern Santa Fe, or BNSF, is privately held. The Fort Worth, Texas-based railroad operator was acquired by Berkshire Hathaway Inc. (BRK.A) $(BRK.B)$ in 2010.

-James Rogers

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July 18, 2025 09:48 ET (13:48 GMT)

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