Every industry goes through mergers and acquisitions, one side will say it is good, the other side will say no it is not good. If you want to understand an industry then it is helpful to review the comments industry groups send to the industry review board. In the case of railways, the industry is regulated by the Surface Transportation Board.

In an article by Christopher Reynolds of the Canadian Press, the proposed merger between 2 railways will either hurt competition and drive up costs across the continent or do the opposite.

Union Pacific, the 2nd largest railroad operator wants to buy Norfolk Southern Corp, the 3rd largest railway for $85 billion. The deal would create the first transcontinental railway and could trigger a wave merger of other railways as they try to stay competitive.

If Union Pacific and Norfolk joined forces, they would control 40% of American freight traffic. One of the more vocal critics is a competitor CPKC CEO Keith Creel who says the acquisition would damage competition, cost customers money, place unprecedented market power in the hands of a single railway.

The 6 largest Class One Railways are: BNSF Railway, Union Pacific, CN Railway, CSX Transportation, CPKC and Norfolk Southern Railway. The last merger was CP and KC to create CPKC,

The planned merger would marry Union Pacific’s vast rail network in the Western US and Norfolk’s rails in the country’s eastern half. The combined railroad would be 50,000 miles of track in 43 states with connections to major ports on both coasts.

The goal is efficiency. Among the big 4 railways, the Mississippi River acts as rough dividing line separating Union Pacific and BNSF in the west and Norfolk Southern and CSX in the east. Rather than have thousands of containers transferred from one railway to another within the same riverside city – St. Louis, Memphis and New Orleans, the merger would allow for more fluid traffic flow and end to end operational control. It would be possible to shave off 24 and 48 hours of transit time. This could mean less trucks on the road and slashing costs.

Opponents believe a merger of BNSF and CSX would happen.

Major trade bodies representing energy, chemicals, agriculture and construction including Chevron, ExxonMobil, DuPont, Dow and Nutrient oppose the merger.

On January 16, the US rail regulator rejected the UP-NS merger application as incomplete and asked the parties to flesh it out. Union Pacific will submit its plans on April 30 with a final decision by the Surface Transportation Board by next year.

7 Republican state attorney generals have asked to the anti-trust division of the US Department of Justice to review the deal, arguing it would hurt competition and the economy.

Linking to dividend paying stocks, the great thing about owning a railway company is there will be no new competitors because it is expensive to build track. If the railway is run well, you can expect the company to pay dividends and make a profit. Since 2011, all railways had a shakeup in management, and all are running better. If the merger goes ahead, one or more may merge which gives you capital gains, in the meantime you can collect dividends and learn about the process and the competition in the railway industry.

There are more questions than answers, till the next time – to raising questions.