Union Pacific-Norfolk Southern Merger Could Start Rail Trend
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The U.S. railroad industry has sought consolidation for decades. For Union Pacific Corp. and CEO Jim Vena, the stars are finally aligning.
The company’s disclosure July 24 that it’s in advanced talks for a combination with Norfolk Southern Corp. — what would be the industry’s largest deal ever — sets up a long-awaited tie-up made easier by the Trump administration’s pro-business stance. The president has a new regulator in place who’s a proponent of rail consolidation, helping to ease antitrust concerns.
That makes the timing ripe for a potentially seismic deal to create the country’s first transcontinental railroad operator, merging two companies with a combined market value of almost $200 billion. Vena, a rail man for almost 50 years, could be the catalyst to upending an industry already dominated by a few players — potentially leading to even more consolidation.
It’s a chance to set Union Pacific on a course to survive the next half century, particularly as technological advances such as autonomous vehicles take hold.
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“We have to continue to make sure that we can compete against everyone that moves products,” Vena said in an interview, speaking of the broader industry landscape.
Railroads, one of America’s oldest industries, have long been a backbone of the U.S. economy but have operated in a scattered way, with different companies controlling regional fiefdoms. Their steady returns and high barriers to entry famously attracted investor Warren Buffett, whose Berkshire Hathaway Inc. bought what’s now BNSF Railway Co. 15 years ago.
But the industry has been stifled by slow growth and cost cuts from an approach known as precision-scheduled railroading that was championed by the late executive Hunter Harrison, one of Vena’s mentors. That has resulted in shrunken workforces and longer, more packed trains.
A merger would enable companies to ship coast to coast without having to interchange. They’ll be able to stock trains longer and higher than ever, enabling more efficient loads and greater profit. It also would mean fewer drivers, raising the prospect of union resistance, and potentially irk customers already uneasy with the amount of power the railroads have.
BNSF and CSX are the next-biggest rail companies after Union Pacific and Norfolk Southern. (BNSF)
Analysts have speculated that a Union Pacific and Norfolk Southern tie-up could leave the next-biggest companies in the industry — BNSF and CSX Corp. — to at least consider their own combinations.
Vena himself set up the possibility of a railroad merger spree at a Wells Fargo industrial conference in Chicago last month, with comments that surprised attendees at the time.
“Do I, Jim Vena, think that a merger would be beneficial for the country? Absolutely,” he said. “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.”
But far from idly speculating, the CEO was tipping his hand to plans set in motion months earlier. Vena and Union Pacific’s executive team had been working with advisers to explore the feasibility of an acquisition of either Norfolk Southern or CSX, according to people familiar with the matter. With initial talks proving fruitful, he was pressing ahead for a deal to come as soon as August.
By the time he made his comments public, unbeknownst to the analysts in the room, he’d already settled on Norfolk as the more compelling opportunity.
Friendly Government Environment
After reports from Bloomberg and other outlets last week that Union Pacific and Norfolk Southern were in talks, the company took the unusual step of announcing that it was in advanced discussions in a press release after its earnings report July 24 — a move likely aimed at providing clarity to investors and stopping speculation.
Canadian Pacific and Kansas City Southern consolidated into CPKC in 2021. (CPKC)
Union Pacific should be able to show a deal would bring higher-quality service and enhanced competition, wrote Jason Seidl, an analyst at TD Cowen. He made another key point: The company likely can sell the deal to the White House, with a focus on “pro-America growth with something like a ‘slamming in the golden spike’ finish (and a great potential photo-op even for President Trump).”
President Donald Trump’s advisers have indicated a willingness to accept the argument — counter to decades of precedent — that fewer players in an already highly consolidated industry would increase competition, not suppress it. U.S. businesses and financiers who threw their support behind the president were counting on him to usher in a new era of dealmaking that would unlock large sums of money for everyone who took part.
When Trump came into office, he elevated consolidation proponent Patrick Fuchs to lead the Surface Transportation Board, the regulator in charge of blessing any railroad industry deal. Fuchs and a fellow commissioner, Karen Hedlund, publicly said this month that the board is ready to review mergers, noting that Canadian Pacific’s purchase of Kansas City Southern was approved in 2021.
They have support in high places. Prior to his elevation to the STB, Fuchs worked as a senior staffer for Sen. John Thune (R-S.D.), who chaired the Commerce, Science and Transportation committee. Thune, now Senate majority leader, has long-standing rail connections, having served as railroad director of his home state in the early 1990s.
CEO Mission
The unlikely change in regulatory conditions have provided an opportunity for Vena, 66, to cap off a career that seemed destined to fall just short of a CEO perch, with an industry-changing legacy.
Born in Italy and raised in Alberta, he started his career in 1977 as a brakeman at the then-state-owned Canadian National. He rose through the ranks as an engineer before moving into sales and marketing, where he came under the influence of Harrison and precision-scheduled railroading, known as PSR.
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Vena advanced the strategy at Canadian National, becoming chief operating officer in 2013, where his methods and penchant for cost-cutting rankled unions. After leaving in 2016, having missed out on the top job, he resurfaced as Union Pacific’s operating chief three years later. He left after about a year to become an adviser, only to return as CEO in 2023 after a hedge fund campaign by Soroban Capital Partners criticized the company’s lagging performance.
Despite his multimillion-dollar compensation, Vena is known for a low-key style. He frequently eschews luxury hotels for business trips, choosing whatever accommodations are best for the work that needs to be done. During last year’s Canadian wildfires he made his Alberta home available as refuge to neighbors who were displaced, according to people familiar with the matter.
What Vena has struggled to do is convince investors that he had a plan to grow the company. At Union Pacific’s investor day in September 2024, his plan to return $4 billion to $5 billion annually over the next three years and reversing a decline in volumes while also freezing capital expenditures, was greeted with skepticism by the market.
Union Pacific’s stock is down about 3% this year, while the S&P 500 Index is up more than 8%.
CSX Speculation
A merger provides a chance for growth that efficiencies can’t. Both Norfolk and CSX offered the opportunity to create a coast-to-coast network and have similar footprints, along with coal businesses that are in secular decline, allowing for scale with consolidation.
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Norfolk was chosen in part due to hesitancy by its previous CEO, Alan Shaw, to commit to PSR — meaning there’s room for more cost cuts, people familiar with the matter said. CSX has also had to contend with costly infrastructure repairs from hurricanes and the closure of the Howard Street Tunnel in Baltimore, they said.
Norfolk’s CEO, Mark George, only took the job in September 2024 and isn’t a rail lifer, having spent most of his career at United Technologies Corp., a business known for its dealmaking, before joining Norfolk as chief financial officer in 2019.
CSX has spoken with advisers about the merits of a merger, according to people familiar with the matter.
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“We’re open to any and all possibilities that create value for our shareholders,” President and CEO Joe Hinrichs said in an interview his week. “We have an active board and we’re having good discussions.”
And the Norfolk Southern deal is far from assured: Union Pacific would have to win over union workers, and the STB, while more welcoming, still may be leery of eliminating competition. In Vena’s view, the company is set up for success either way.
“We are the most efficient at what we do, which gives us a whole bunch of capability to do things,” he said.
