Norfolk Southern and Union Pacific freight locomotives in Burnside, Ky. (Luke Sharrett/Bloomberg)
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Union Pacific and Norfolk Southern confirmed July 24 that they are in merger talks that would create a single U.S railroad with service stretching from the East to the West Coast.
The Associated Press reported last week that the companies were discussing a tie-up but neither company confirmed until July 24.
The potential merger would combine the largest and smallest of the country’s six major freight railroads.
There’s widespread debate over whether such a merger would be approved by U.S. regulators, which have established a high bar for consolidation in the crucial industry.
That’s largely because of the aftermath of an industry consolidation nearly 30 years ago that involved Union Pacific.
Union Pacific merged with Southern Pacific in 1996 and the tie-up led to an extended period of snarled rail traffic on U.S. rails. Three years later, Conrail was divvied up by Norfolk Southern and CSX, which led to more backups on rails in the East.
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However, just two years ago, the U.S. Surface Transportation Board approved the first major rail merger in more than two decades. In that deal, which was supported by big shippers, Canadian Pacific acquired Kansas City Southern for $31 billion to create the CPKC railroad.
Still, some of the reasoning behind the approval was that it involved two of the smallest major railroads, and Kansas City Southern was the only operator with direct lines into Mexico. The combined railroad, regulators reasoned, would benefit trade across North America.
The deal left only six major freight railroads, however, which could become an issue when regulators consider whether to approve any deal between Norfolk Southern and Union Pacific.
To be approved, any major rail merger must show it will enhance competition and serve the public interest under rules established in 2001, in the wake of that pair of mergers.
Also July 24, Union Pacific reported that its adjusted profit grew to $1.8 billion in the second quarter.
The Omaha, Neb., company’s per-share earnings rose to $3.03, beating Wall Street expectations and easily topping the $2.71 per-share profit it reported in the same period last year. Analysts were expecting profit of $2.91 per share for the recent quarter.
Operating revenue grew 2% over last year, to $6.2 billion, the company said.
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