Union Pacific and Norfolk Southern in talks to create $200bn transcontinental US railway

Megamerger would face intense regulatory scrutiny and probably require backing of Trump administration

Railroad operator Union Pacific has said it is in “advanced discussions” with rival Norfolk Southern over a possible megamerger that could create a transcontinental US railway valued at more than $200bn.

The Nebraska-based railroad operator took the unusual move on Thursday of confirming it was in “advanced discussions regarding a potential business combination” with Norfolk Southern after the Financial Times and other media reported on the discussions last week.

Any transaction would create the first ever rail network stretching from coast to coast in the US — a prospect that observers of the sector have previously assumed industry regulator the Surface Transportation Board would never allow.

Any deal would require the approval of the Republican-controlled board and, probably, the assent of President Donald Trump’s administration.

Union Pacific added in a statement: “There can be no assurances as to whether an agreement for a transaction will be reached or as to the terms of any such transaction”.

Shares in Union Pacific slipped 2.5 per cent and Norfolk Southern rose 1 per cent in early trading following the announcement.

Talks over what would be the industry’s biggest-ever tie-up come as the sector is strained by fluctuating freight volumes, due in part to the threat of tariffs from the Trump administration, as well as rising labour and fuel costs.

Any deal would be the sector’s first since Canadian Pacific Railway combined with Kansas City Southern a $31bn merger in 2023, despite former president Joe Biden’s broader crackdown on large deals.

However, Kansas City Southern, which operated mainly north-south routes, was much the smallest of the then seven “Class I” railroads in Canada and the US. A combination of Union Pacific and Norfolk Southern would bring together the biggest and fourth-biggest operators by revenue. It would also for the first time create a US railroad able to move cargo right across the country.

At present, Union Pacific and Warren Buffett’s BNSF operate almost wholly west of the Mississippi while Norfolk Southern and rival CSX operate in the eastern third of the US.

The biggest benefit of any merger would be to ease heavy congestion in Chicago, the US’s busiest rail interchange, where trains move from one carrier to another. A tie-up between the two operators would potentially reduce costs, deliver a faster service and reduce terminal congestion.

But experts expect railroad customers — which include agricultural producers, energy companies and heavy industry — to express concerns about the pricing power that a single transcontinental railway would wield.

Previous transactions, even when approved, have often involved significant concessions to allay competition concerns. Railroads have in some cases been forced to sell routes to competitors, while regulators often demand rivals are allowed to use parts of a merged railway’s network to ensure customers still have a choice of suppliers.

This story originally appeared in Financial Times.