Union Pacific to acquire Norfolk Southern for $320 per share

Union Pacific (UNP) and Norfolk Southern Corporation (NSC) announced an agreement to create America’s first transcontinental railroad. These companies will connect over 50,000 route miles across 43 states from the East Coast to the West Coast, linking approximately 100 ports and nearly every corner of North America. Under the terms of the agreement, Union Pacific will acquire Norfolk Southern in a stock and cash transaction, implying a value for Norfolk Southern of $320 per share based on Union Pacific’s unaffected closing stock price on July 16 and representing a 25% premium to Norfolk Southern’s 30-trading day volume weighted average price on July 16. The value per share implies an enterprise value of $85B for Norfolk Southern, resulting in the creation of a combined enterprise of over $250B. The transaction is subject to review by the Surface Transportation Board. The companies expect to file their application with the STB within six months. The board of directors of both Union Pacific and Norfolk Southern unanimously approved the transaction, which is subject to STB review and approval within its statutory timeline, customary closing conditions, and shareholder approval. The companies are targeting closing the transaction by early 2027. Under the terms of the agreement, Norfolk Southern shareholders will receive 1.0 Union Pacific common share and $88.82 in cash for each share of Norfolk Southern. The implied value of $320 per share represents an implied total enterprise value for Norfolk Southern of $85B based on Union Pacific’s unaffected closing stock price on July 16. Union Pacific will issue a total of approximately 225M shares to Norfolk Southern shareholders, representing 27% ownership in the combined company on a fully diluted basis. The agreement is structured without a voting trust and includes a $2.5B reverse termination fee. The cash portion of the transaction will be funded through a combination of new debt and balance sheet cash. At closing, the combined business will have a strong balance sheet and debt to EBITDA of approximately 3.3x, supporting a balanced capital allocation strategy. The combined company will continue to prioritize and maintain a strong balance sheet and investment grade rating. Based on 2024 results, the pro-forma combined company would have revenues of approximately $36B, EBITDA of approximately $18B, operating ratio of 62%, and free cash flow of $7B. The transaction is expected to be accretive to Union Pacific’s adjusted EPS per share in the second full year after closing and rising to high single digit accretion thereafter. Jim Vena, Union Pacific CEO, will lead the combined company as CEO and has committed his intent to remain at Union Pacific for at least the next five years. The Union Pacific and Norfolk Southern management teams will continue to independently run each company until the transaction’s closing. At closing, three Norfolk Southern Directors, including Mark George and Richard Anderson, are expected to join the Union Pacific board of directors after completing the corporate governance process. The combined company will be headquartered in Omaha, Nebraska. Atlanta, Georgia will remain a core location for the combined organization over the long-term with a focus on technology, operations, and innovation, among other priorities.