Union Pacific and Norfolk Southern confirmed that they are in "advanced" merger talks that would create a single U.S. railroad with service stretching from the East to the West Coast.
The Associated Press reported last week that the companies were discussing a tie-up but neither company acknowledged that until Thursday morning.
The potential merger would combine the largest and smallest of the country's six major freight railroads.
Independent railroad analyst Tony Hatch said that the disclosure by the railroads suggests that negotiations are further along than previously thought.
"What people will interpret out of that is that they have, one way or another, figured out what the benefits are," Hatch said, adding that those benefits, such as efficiency, would be passed on to customers. That will be key for getting regulatory approval under the Surface Transportation Board's enhanced competition clause.
There's widespread debate over whether such a merger would be approved by the STB, which has established a high bar for consolidation in the crucial industry.
That's largely because of the aftermath of an industry consolidation nearly 30 years ago that involved Union Pacific. Union Pacific merged with Southern Pacific in 1996 and the tie-up led to an extended period of snarled traffic on U.S. rails. Three years later, Conrail was divvied up by Norfolk Southern and CSX, which led to more backups on rails in the East.
However, just two years ago, the STB approved the first major rail merger in more than two decades. In that deal, which was supported by big shippers, Canadian Pacific acquired Kansas City Southern for $31 billion to create the CPKC railroad.
Still, some of the reasoning behind the approval was that it involved two of the smallest major railroads, and Kansas City Southern was the only operator with direct lines into Mexico. The combined railroad, regulators reasoned, would benefit trade across North America.
The deal left only six major freight railroads, which could become an issue when regulators consider whether to approve any deal between Norfolk Southern and Union Pacific.
To be approved, any major rail merger must show it will enhance competition and serve the public interest under rules established in 2001, in the wake of that pair of mergers.
Hatch also said that big shippers like Amazon, Dow and U.S. Steel — who use massive amounts of freight capacity — will likely weigh in with regulators as the merger process develops. Those shippers will first have to determine if a merger would improve their ability to move equipment and products, or harm it.
"If the shippers want this merger, they'll make it clear," Hatch said. "They really hold the cards."
Jeff Windau, an industry analyst with Edward Jones, expects a protracted regulatory process as the STB tries to determine whether the merger will meet its standard of enhancing competition.
"While we believe there could be benefits to a transcontinental railroad, we do feel that the regulatory approval process would be long and challenging," Windau said, noting that the last major railroad merger — between Canadian Pacific and Kansas City Southern — took 18 months to be completed.
Also Thursday, Union Pacific reported that its adjusted profit grew to $1.8 billion in the second quarter.
The Omaha, Nebraska company's, per-share earnings rose rose to $3.03, beating Wall Street expectations and easily topping the $2.71 per-share profit it reported in the same period last year. Analysts were expecting profit of $2.91 per share for the recent quarter.
Operating revenue grew 2% over last year, to $6.2 billion, the company said.
Union Pacific shares fell 2% just at the opening bell Thursday, to $226.70 each. They had slumped to around $208 in early April, their lowest level of 2025, as President Donald Trump rolled out sweeping tariffs that threatened to upend global trade.
