Canadian rail giants may disrupt bids for Norfolk Southern, CSX

Investing.com -- Speculation in the railroad industry has intensified in recent weeks following reports that Union Pacific (NYSE:UNP) is exploring a takeover of Norfolk Southern (NYSE:NSC). The proposed deal would link a dominant West Coast operator with a major East Coast rival, creating a coast-to-coast freight rail powerhouse.

Union Pacific CEO Jim Vena said earlier this year that such a combination could be beneficial for the industry and customers. A deal that was once viewed as implausible is now considered more viable amid expectations of a more permissive regulatory environment under the new Trump administration.

The mounting buzz has put other rail operators on alert. CSX Corporation (NASDAQ:CSX), the other major East Coast railroad, is widely seen as another possible target, and recent rumors have suggested that BNSF, owned by Warren Buffett’s Berkshire Hathaway (NYSE:BRKa), could be eyeing either CSX or Norfolk Southern.

Also keeping a close watch are Canada’s two dominant railways, Canadian National Railway (TSX:CNR) (NYSE:CNI) and Canadian Pacific Kansas City Limited (NYSE:CP). While cross-border regulatory hurdles make it more difficult for these operators to acquire a U.S.-based eastern rail, some industry watchers believe the Canadian players could act as spoilers to any proposed deal.

On Monday, just as reports surfaced that BNSF had hired Goldman Sachs to explore a possible acquisition—claims later denied by Buffett—Canadian Pacific Kansas City and CSX issued a joint press release. The two companies announced a new east-west freight route called the Southeast Mexico Express, which will connect shippers in Mexico, Texas, and the southeastern U.S. The timing of the announcement raised eyebrows.

Canadian National Railway kicked off rail earnings season on Tuesday. While results disappointed, investors focused on management’s commentary around the growing wave of consolidation chatter.

CEO Tracy Robinson acknowledged the speculation but urged caution. In response to a question from TD Cowen analyst Cherilyn Radbourne, Robinson said: “We recognize the chatter and are paying attention, but it would make no sense for us to speculate on mergers or the intentions of other Class I railroads. We believe similar benefits can be achieved through commercial partnerships without the disruption of a full merger. And the regulatory hurdles are significant and largely untested.”

Later, when asked by Susquehanna analyst Bascome Majors whether Canadian National would stay on the sidelines or act defensively, Robinson added: “We are focused on executing our current plan. That’s the right thing for us now. In any scenario, we would rigorously defend our competitive access and growth prospects.”

Representatives for CSX, Union Pacific, Norfolk Southern, BNSF, Canadian National, and Canadian Pacific Kansas City declined to comment.