Union Pacific's deal to buy Norfolk Southern for $320 a share and form America's first freight-focused transcontinental railroad is meeting a stock market reality check on Tuesday morning. While the price represents an 11.7% premium to Monday's closing price, NSC shares slid in early stock market action.
UNP stock also fell, as did CSX, which is seen as a potential partner for Berkshire Hathaway's BNSF Rail to form a rival coast-to-coast network. CSX and Norfolk Southern both operate East Coast networks, while UNP and BNSF operate networks spanning the western two-thirds of the U.S.
Transcontinental Payoff
Union Pacific and Norfolk Southern said their deal would generate $2.75 billion a year in cost synergies, while delivering faster freight service to customers by eliminating delays at the interchanges between rail networks. That will create a "more truck-competitive solution" and theoretically decrease highway congestion.
"It builds on President Abraham Lincoln's version of a transcontinental railroad from nearly 165 year ago," Union Pacific CEO Jim Vena said in a statement.
A transcontinental railroad for freight is seen as more viable under President Donald Trump's antitrust policies. Trump-appointed Surface Transportation Board Chairman Patrick Fuchs has expressed openness to railroad consolidation.
Semafor has noted that a coast-to-coast railroad line would provide stiffer competition for the trucking industry, which handles 70% of domestic freight.
Why NSC Stock Is Falling
The railroad networks said they will file their application for Surface Transportation Board approval within six months. They aim to complete the transaction by early 2027.
Even presuming eventual approval, the payoff from the deal will be a long time in coming. Further, even an approval might come with conditions, such as selling off certain assets in the interest of competition.
In the meantime, Union Pacific said it would halt stock buybacks, a modest negative for near-term earnings, because the deal will push debt to about 330% of earnings before interest, taxes, depreciation and amortization. Share repurchases wouldn't resume until at least some time in 2028.
The deal's terms give Norfolk Southern shareholders $88.82 in cash per share, plus one share of Union Pacific stock, so any pullback in UNP has an immediate effect.
Deal speculation had already pushed NSC stock higher. The deal's price represented a 25% premium to Norfolk Southern's weighted average share price over the prior 30 days.
NSC, UNP, CSX, BRKB
UNP fell 2.5% to 223.50, while NSC slipped 2.5% to 279.59, falling back into a buy zone. Norfolk Southern has a 270 buy point from a double-bottom base. The buy zone runs through 283.50.
Meanwhile, CSX lost 1.4% to 35.20. CSX slipped back into a buy zone above a 33.82 buy point from a cup-with-handle base, according to MarketSurge. The buy zone runs through 35.51.
Berkshire Hathaway rose 0.3% to 483.06.
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