Union Pacific is working with Morgan Stanley investment bankers to provide guidance on the potential acquisition of another Class I railroad, the online publication Semafor reported on Wednesday, citing people familiar with the matter.
UP and Morgan Stanley declined to comment to the media outlet. CSX and Norfolk Southern stock prices surged on the news, while UP’s declined.
The Wall Street Journal has subsequently reported in a paywalled article that UP and Norfolk Southern are in the early stages of talks about a merger. There is no guarantee a deal will result, and another suitor could emerge, according to the Journal.
UP CEO Jim Vena has touted the potential benefits of a transcontinental merger while acknowledging the regulatory obstacles to any deal.
The Surface Transportation Board adopted more rigorous merger review rules in 2001 after rapid consolidation in the industry during the 1990s, including the Burlington Northern-Santa Fe and Union Pacific-Southern Pacific mergers as well as the CSX-Norfolk Southern deal to carve up Conrail.
The 2001 review rules — which require a merger to enhance competition and be in the public interest — remain untested. The 2023 merger of Canadian Pacific and Kansas City Southern was judged under the old merger rules thanks to an exemption that was granted to KCS, the smallest Class I, in the 2001 rules.
The STB is currently split along party lines, with two Republicans and two Democrats on the board. Analysts don’t expect a third Republican member to be nominated and confirmed before next year. And if two Class I railroads were to propose a merger, analysts say any deal would not be hatched until after a third Republican is seated on the board.
— Updated at 4:53 p.m. CT with Wall Street Journal report of merger talks.
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