It’s legacy time for railroads, and that isn’t spoken lightly in an industry that as much as any other, is irrevocably and deeply tied to its past.
Union Pacific and Norfolk Southern are reportedly in discussions regarding a merger. A consolidation, if approved, would produce the first true transcontinental railroad and all that goes along with it, an event that in many ways would surpass the 1997 merger of aviation giants Boeing (NYSE: BA) and McDonnell-Douglas as the most historically significant corporate deal in modern commercial transportation.
Hard to argue legacy with a business that in less than a century quite literally helped make the United States into the global political and economic behemoth touching both of the world’s great oceans. Union Pacific (NYSE: UNP), whose very existence is owed to Abraham Lincoln’s signature, had in the past honored its legacy with a two-word slogan: “Building America”. They ain’t lyin’.
That’s probably why so many railroads, including Norfolk [& Western] Southern [Railway] have honored their predecessors, post-merger. UP, not so much in name, although so many route-miles along the Class I networks are still referred to by their originating road, or the carrier which did the most to develop a given line.
At the same time, there’s a reason the dollar rules the world. As someone once said about railroads and the growth of the mighty American industrial machine, “The money comes right up those tracks.”
So, legacies are on the line. But whose, exactly?
Start with UP Chief Executive Jim Vena, an American citizen and Canadian via France via Italy, and the last of his kind — the railroad boss who worked his way up to the corner suite from humble beginnings “on the ground” as a teenager in a track gang. He’s not shy about letting you know, or boasting about his company’s industry-leading metrics, or industry-widest network, or invoking the “elbows up” combativeness of a former hockey player before it lately became fashionable, or poking another CEO at a public forum over which railroad has the biggest, most powerful, most famous steam engine on rails. (That would be UP’s Big Boy, if you’re wondering.)
Vena came out of retirement in 2023 to lead UP, and has been outspoken about what he sees as the benefits of a transcon combination, though it could be argued that handoffs of trains between eastern and western roads has never been smoother. It’s harder to divine the benefits to carload traffic, which has been on a downward trend for all U.S. Class Is paralleling the decline of U.S. manufacturing, and the collapse of coal — the surge in recent shipments for power-hungry electrical grids notwithstanding.
Not talked about as much as an impact on carloads is the fact that since Donald Trump returned to the White House, investors have been punishing the dollar over the administration’s zig-zagging economic policies. The greenback’s index against a half-dozen currencies including the yen, euro, and pound fell 10.8% through June. That’s hardly an encouraging sign for an administration that’s boosting reindustrialization, since a weaker dollar will make imported raw materials, such as steel and aluminum, for U.S.-manufactured products more expensive, on top of new tariffs.
There’s another legacy here, that of an already-legendary investor who happens to have his office less than 10 minutes from Vena’s in Omaha. That would be Warren Buffett, whose Berkshire Hathaway conglomerate (NYSE: BRK-B) owns Burlington Northern Santa Fe and whose presence would loom large in any merger talk.
Burlington Northern and the Atchison, Topeka & Santa Fe completed their own merger in 1995 and now is a rival to, and in many places operates side by side with, UP. Buffett is bullish on rail and bought Dallas-based BNSF in 2010. At first blush, it’s expected that BNSF would look to CSX (NASDAQ: CSX) as a merger partner in the current scenario. But there are a lot more factors to consider. Like 347 billion more, which is how much cash B-H is currently sitting on. That’s more than twice the value of Union Pacific itself, and about six times that of Norfolk Southern. Though little has been heard on mergers from Buffett, or his successor, Greg Abel, the banker’s mind reels contemplating a bidding war for NS (NYSE: NSC). Besides, no one wants to be the last one to the party.
Maybe that’s why investment firms have lately been coming out of the woodwork to express optimism for a final round of rail consolidation. Some interpret that as a signal they’re done propping up the railroad stocks, and it’s time to cash out. Remember, activist investor Ancora Holdings may have failed in its heavy-handed attempt to wrest control of NS after the disastrous East Palestine derailment, but it succeeded in winning a number of seats on the board, and forcing out CEO Alan Shaw.
The triad of legacies is rounded out by Surface Transportation Board Chairman Patrick Fuchs, who was the second-youngest member ever when appointed to the rail competition regulator by Trump in 2019 but is in his first year as agency head.
In point of fact, Fuchs established an early legacy as co-author of the Surface Transportation Board Reauthorization Act of 2015, and the Fixing America’s Surface Transportation (FAST) Act, which created the Consolidated Rail Infrastructure and Safety Improvements (CRISI) Program of grants, among other benefits.
Fuchs has been pro-active in modernizing the regulator and making its reviews more streamlined, efficient, and productive. He is deeply committed to the adjudicatory process, which in the case of UP-NS is sure to draw comment across the spectrum of rail stakeholders.
While the Justice Department would contribute comments on anti-trust aspects of a UP-NS deal, final say rests with the STB.
The agency currently seats four of five members, split 2-2 along party lines. Expectations are that a fifth member likely would be recommended to the White House by 2026, but the runup to any approval has the intriguing potential to move over an unknown but semi-synchronous timeframe with the UP-NS review.
This article was edited July 21 to delete a reference to Ancora Holdings forcing out NS CEO Alan Shaw. Shaw later left the company after an inappropriate relationship with a colleague. Also, the date of the Surface Transportation Board Reauthorization Act was corrected to 2015.
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Find more articles by Stuart Chirls here.
Related coverage:
Union Pacific, Norfolk Southern in merger talks: WSJ
Report: Investment firm advising Union Pacific on potential rail merger
BNSF, UP settle dispute over Salt Lake City intermodal service
Washington rail short lines on Jaguar buy list
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