Union Pacific, the largest U.S. freight railroad operator, is exploring a possible acquisition of Norfolk Southern to create a $200 billion coast-to-coast rail network, a person familiar with the matter said.

Talks are in early stages, the person said, with no guarantee talks will progress or that any deal would pass what would be expected to be a lengthy, detailed regulatory review. The two companies declined to comment.

Any deal to unite two of the six largest freight rail operators in North America is likely to draw intense regulatory scrutiny. Major shippers in the steel, chemical and grain industries are expected to lobby against any further concentration in an industry that has consolidated from over 100 Class I railroads in the 1950s to just six today.

Union Pacific shares fell 2.7% in Friday afternoon trading, while Norfolk Southern rose 1.52%.

A combination would mark a shift in the U.S. freight rail landscape, creating a single-line network stretching from coast to coast, changing the current divide between western and eastern regional operators.

Norfolk is recovering from a tumultuous past couple of years that included the firing of its previous CEO amid ethics investigations, a boardroom battle with activist Ancora, and a train derailment that cost the company about $1.4 billion.

CONCENTRATION

A merger between Union Pacific and Norfolk Southern would create the first modern West-to-East single-line freight railroad in the U.S.

Earlier this year, Union Pacific CEO Jim Vena said a transcontinental merger would be good for customers, eliminating the need for interchanges between carriers in Chicago — a longstanding bottleneck — and reducing costly delays for shippers.

But critics warn that such consolidation could reduce competition, a possible concern for regulators. With fewer major players in the market, shippers may face higher costs and diminished service options.

"We suspect certain shipper groups could get vocal on the perceived lost competition a merger would bring," Barclays analyst Brandon R. Oglenski said.

Discussions between the two operators, first disclosed by Semafor, spurred speculation that competitors would also consider concentration.

"History teaches that mergers and acquisitions within the railroad industry will inspire and motivate additional M&A," said Mike Steenhoek, executive director of the Soy Transportation Coalition.

That happened earlier this decade when Canadian Pacific offered to acquire Kansas City Southern, which prompted CP’s main competitor — Canadian National — to submit their own offer to acquire Kansas City Southern.

Ultimately the Canadian National offer was not allowed to proceed, and Canadian Pacific did acquire Kansas City Southern in 2023 —  creating the first railroad to link Canada, the U.S. and Mexico.

REGULATORY SCRUTINY

In 2024, Union Pacific led the industry with $24.3 billion in revenue, followed by BNSF (privately held, owned by Berkshire Hathaway), CSX, Canadian National, Norfolk and Canadian Pacific Kansas City.

"The energy and momentum toward the remaining two U.S. based Class I railroads – BNSF and CSX – pursuing a merger would be considerable," Steenhoek said.

A regulatory decision could take 16 to 22 months, with merging carriers required to notify the Surface Transportation Board three to six months before filing an application, followed by a year-long evidentiary review and a final ruling within 90 days, Oglenski said.

A potential Union Pacific acquisition of Norfolk Southern could have material synergy, he said.

"Any deal would face serious review from regulators," said Emily Nasseff Mitsch, equity analyst at CFRA.