Union Pacific buys Norfolk Southern in USD85 billion US railroad deal

(Alliance News) - Union Pacific Corp on Tuesday agreed to buy Norfolk Southern Corp for USD85 billion, creating the first transcontinental railroad in the US.

Shares in Union Pacific, the Omaha, Nebraska-based railroad company, fell 1.9% to USD224.96 in New York on Tuesday morning for a market value of USD133.20 billion.

Union Pacific will acquire Norfolk Southern in a stock and cash transaction, implying a value for Norfolk Southern of USD320 per share based on Union Pacific’s closing stock price on July 16, before reports of a possible deal began to emerge.

Norfolk Southern shareholders will receive 1.0 Union Pacific common share and USD88.82 in cash for each share of Norfolk Southern for an implied value of USD320 per share or USD85 billion in total based on Union Pacific’s unaffected closing stock price on July 16.

On Tuesday, Norfolk Southern traded down 2.5% at USD279.35 for a market value of around USD62.93 billion, meaning the combined group would be worth around USD200 billion.

Union Pacific will issue around 225 million shares to Norfolk Southern shareholders, representing 27% ownership in the combined company on a fully diluted basis. The agreement is structured without a voting trust and includes a USD2.5 billion reverse termination fee.

The cash portion of the transaction will be funded through a combination of new debt and balance sheet cash. At closing, the combined business will have a strong balance sheet and debt to earnings before interest, tax, depreciation and amortisation of around 3.3 times. The combined company will continue to prioritise and maintain a strong balance sheet and investment grade rating.

Based on 2024 results, the pro-forma combined company would have revenue of USD36 billion, Ebitda of USD18 billion, operating ratio of 62%, and free cash flow of USD7 billion. The deal is expected to be accretive to Union Pacific’s adjusted EPS per share in the second full year after closing and rising to high single digit accretion thereafter.

The deal is expected to unlock around USD2.75 billion in annualised synergies and deliver substantial long-term value for Union Pacific and Norfolk Southern shareholders, the companies said in a joint statement.

The combination will create the first transcontinental railroad in the US, connecting over 50,000 route miles across 43 states from the East Coast to the West Coast, linking around 100 ports and nearly every corner of North America.

"This combination will transform the US supply chain, unleash the industrial strength of American manufacturing, and create new sources of economic growth and workforce opportunity that preserves union jobs," the two companies said.

"This combination is transformational, enhancing the best freight transportation system in the world – it's a win for the American economy, it's a win for our customers, and it’s a win for our people," said Union Pacific Chief Executive Jim Vena.

Vena will lead the combined entity as CEO and has committed his intent to remain at Union Pacific for at least the next 5 years.

The companies are targeting closing the transaction by early 2027.

By Jeremy Cutler, Alliance News reporter

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