Union Pacific has signed an agreement to acquire Norfolk Southern in a stock and cash transaction, at an enterprise value of $85bn, which will result in a combined enterprise worth over $250bn.
This strategic move will create the first modern transcontinental railroad in the US, seamlessly connecting over 50,000 route miles (80,467km) across 43 states and linking approximately 100 ports.
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The two companies recently confirmed discussions regarding the merger, while insisting that no guarantees could be made about the finalisation of any agreement.
This combination is expected to transform the US supply chain and generate new avenues for economic growth and workforce opportunities while safeguarding union jobs.
Shareholders of Norfolk Southern will receive one Union Pacific common share and $88.82 in cash for each share they hold in Norfolk Southern.
The acquisition values Norfolk Southern at $320 per share, a 25% premium over its recent average price.
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By GlobalDataUnion Pacific is set to issue around 225 million shares to Norfolk Southern shareholders, which will account for 27% ownership in the merged entity on a fully diluted basis.
This arrangement allows Norfolk Southern shareholders to benefit from the growth opportunities and synergies of the combined company.
The agreement is designed without a voting trust and incorporates a reverse termination fee of $2.5bn.
The transaction, approved by both companies’ boards, is subject to Surface Transportation Board review and shareholder approval, with a target closing by early 2027.
Union Pacific CEO Jim Vena said: “Railroads have been an integral part of building America since the Industrial Revolution, and this transaction is the next step in advancing the industry.”
The merged entity will offer quicker and more extensive freight services to US shippers by minimising interchange delays, introducing new routes, enhancing intermodal services, and shortening distances and transit times on crucial rail corridors.
This will provide a more truck-competitive solution, reduce highway congestion, and support annual infrastructure investments of approximately $5.6bn.
Additionally, the workforce will benefit from protected and expanded job opportunities, with union employees having job security and the possibility of additional employment due to expected rail volume growth.
Communities will also see continued investment in safety and development initiatives, with a goal of zero incidents.
Furthermore, the transaction promises significant shareholder value, with more than $30bn of potential value creation expected from synergies.
Norfolk Southern CEO Mark George said: “We are confident that the power of Norfolk Southern’s franchise, diversified solutions, high-quality customers and partners, as well as skilled employees, will contribute meaningfully to America’s first transcontinental railroad, and to igniting rail’s ability to deliver for the whole American economy today and into the future.”
Morgan Stanley & Co and Wells Fargo are financial advisors to Union Pacific, with Skadden, Arps, Slate, Meagher & Flom and Covington & Burling providing legal advice.
BofA Securities advises Norfolk Southern, with Wachtell, Lipton, Rosen & Katz and Sidley Austin as legal counsel.
