Union Pacific and Norfolk Southern Announce Historic $85 Billion Merger to Create First U.S. Transcontinental Railroad

Union Pacific Corporation and Norfolk Southern Corporation have announced a definitive agreement to merge, aiming to create the first transcontinental railroad in the United States. The $85 billion deal, unveiled on July 29, 2025, seeks to seamlessly connect over 50,000 route miles across 43 states, linking approximately 100 ports and enhancing the U.S. supply chain.

Under the terms of the agreement, Union Pacific will acquire Norfolk Southern in a stock and cash transaction. Norfolk Southern shareholders are set to receive one Union Pacific common share and $88.82 in cash for each Norfolk Southern share, implying a value of $320 per share—a 25% premium over Norfolk Southern's 30-day volume-weighted average price as of July 16, 2025. This structure results in Norfolk Southern shareholders owning about 27% of the combined entity.

The combined company is projected to have an enterprise value exceeding $250 billion. Management anticipates approximately $2.75 billion in annualized synergies, contributing to over $30 billion in potential value creation. Based on 2024 pro-forma results, the merged entity would have revenues of around $36 billion, EBITDA of approximately $18 billion, an operating ratio of 62%, and free cash flow of $7 billion. The transaction is expected to be accretive to Union Pacific's adjusted earnings per share in the second full year after closing, with high single-digit accretion thereafter.

The cash portion of the transaction will be funded through a combination of new debt and existing balance sheet cash. At closing, the combined company is expected to have a Debt to EBITDA ratio of approximately 3.3x, maintaining a strong balance sheet and investment-grade rating.

The merger is subject to approval by the Surface Transportation Board (STB), which will assess the transaction's impact on competition, service, safety, and the public interest. The review process is expected to take up to 22 months, with the companies targeting completion by early 2027. Notably, the agreement includes a $2.5 billion reverse termination fee, payable by Union Pacific to Norfolk Southern if the STB rejects the deal or imposes conditions deemed too burdensome.

This merger comes amid a broader trend of consolidation in the U.S. rail industry. However, other major railroads have expressed reluctance to pursue similar mergers. For instance, Canadian Pacific Kansas City and BNSF Railway have publicly rejected participating in near-term rail industry consolidation, narrowing prospects for further mergers.

Following the merger announcement, shares of both Union Pacific and Norfolk Southern experienced declines. Norfolk Southern's stock fell by 3%, while Union Pacific's dropped by 2.4%. This market reaction reflects investor skepticism, largely due to uncertainties surrounding the lengthy regulatory review process and potential financial risks if the merger does not proceed.

The proposed merger has significant implications for the U.S. supply chain and economy. By creating a coast-to-coast rail network, the combined company aims to provide faster, more competitive service, potentially reducing reliance on trucking and alleviating highway congestion. Additionally, the merger is expected to preserve union jobs and create new economic growth opportunities.

Union Pacific's acquisition of Norfolk Southern marks a significant development in the rail industry and corporate financing strategies. The shift towards equity and cash financing reflects broader economic trends and corporate responses to current financial conditions.