Union Pacific (UP) and Norfolk Southern (NS), two of the largest operators in the United States, might finalise an agreement for a merger already this week. First estimates say that UP values NS around 72 billion dollars (62 billion euros).
The idea of UP purchasing NS to create the first coast-to-coast railway operator in the US surfaced last week. The two companies already confirmed that they are in advanced talks, and now UP revealed what it thinks NS is worth. The company said it values NS’ shares 320 dollars (276 euros) each, and Bloomberg estimated a total equity value of 72 billion dollars, which would make it the largest of its kind by a landslide.
It might take a while
However, industry experts point out that the whole process might take up to two years and the probability of it actually happening remains quite low, around 25 or 30%. Even if the two companies finalise the deal, the last word belongs to the Safety Transportation Board (STB), and the process could take a while, Bloomberg’s transport analyst Lee Klaskow pointed out.
Considering that it took about 18 months for a much smaller merger, the one that led to the creation of CPKC, a unification of two bigger companies is likely to require more attention and time. UP and NS “have to prove that this deal is in the public interest”, Klaskow underlined. In other words, they have to convince the STB that this massive deal for the first coast-to-coast railway operator in the US would not distort competition.
Pros and cons
Creating such a large company, with a market value of about 200 billion dollars (172,6 billion euros) might make operations cheaper and safer. If the whole network is operated by one entity, rail wagons would be touched less. Every time there is a change of network, wagons need to be handled, which means more costs and more probability of accidents occurring, Klaskow explained. As a negative, shippers might be afraid that competition will be hindered, as there would be fewer choices. Moreover, there could be layoffs on the corporate side, as many management positions might be merged and the need for sales staff and accountants might decrease, Klaskow added.