July 31, 2025 | Industrials | North America | Active
Union Pacific and Norfolk Southern have agreed to merge in the biggest deal of the year, a landmark $85bn transaction that will create America’s first transcontinental railroad. Norfolk Southern shareholders will receive $88.82 in cash plus 1 Union Pacific share for each share held, valuing the target at $320 per share based on Union Pacific’s unaffected price on 16-Jul-25. This represents a 22.9% premium to Norfolk Southern’s undisturbed price of $260.32, before Bloomberg reported on rumours of a deal on 24-Jul-25. The boards of both companies unanimously approve the deal. The combination will result in Norfolk Southern shareholders owning a 27% stake in the combined company. Union Pacific will fund the cash portion with a mix of new debt and existing cash, and at closing, Union Pacific will be levered at 3.3x total debt-to-EBITDA, which management intends to reduce to 2.8x within two years. Union Pacific will suspend its share repurchase programme until the second year after closing, at which point it expects to resume and eventually take it to $10bn annually, by year three. Union Pacific CEO Jim Vena will lead the combined company, and three Norfolk Southern directors, including CEO Mark George, will join Union Pacific’s board. Upon completion, Union Pacific will remain headquartered in Omaha, Nebraska, while Norfolk Southern’s current headquarters, in Atlanta, Georgia, will remain a core centre focused on technology, operations, and innovation. Conditions to completion include approvals from the Surface Transportation Board (STB), the Mexican National Antitrust Commission (CNA), the Federal Communications Commission (FCC), and the shareholders of both companies (50%). The companies submitted a pre-filing notice to the STB on 30-Jul-25, and they plan to file a full application by 29-Jan-26. The STB review is expected to last approximately 16 months. The merger agreement is relatively standard with customary representations, warranties, and covenants, including non-solicitation clauses with fiduciary-out provisions. Both parties have agreed to use “reasonable best efforts” to complete the transaction, including defending any lawsuits and offering remedies to secure regulatory approvals. There is a $2.5bn termination fee in place, payable by either side in specified circumstances, as well as a $2.5bn RTF if the deal fails to close due to regulatory issues. The agreement prohibits either party from ...
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