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Investing.com -- S&P Global Ratings has revised Norfolk Southern Corp (NYSE:NSC).’s outlook to positive from stable following the company’s proposed merger with Union Pacific (NYSE:UNP).
The rating agency believes the acquisition would enhance Norfolk Southern’s competitive position by creating an integrated transcontinental network spanning over 52,000 route miles across 40 states. Norfolk Southern currently operates 19,500 route miles in the eastern U.S., while Union Pacific maintains 33,000 route miles.
S&P Global noted that the merger presents strategic advantages by enabling the combined entity to offer cross-country rail transportation on a unified network. This would likely improve competitiveness by shortening transit times through elimination of freight interchange between networks and provide shippers with tracking over a single platform.
Regulatory approvals are expected to take about 16 months, with the transaction potentially closing in late 2026 or early 2027. The rating agency acknowledged that a merger of this scale will likely face challenges from competitors, and it remains uncertain whether the U.S. Surface Transportation Board and Department of Justice would approve the deal or what concessions might be required.
Union Pacific plans to assume approximately $17 billion of Norfolk Southern’s debt and issue $16 billion of incremental debt to fund the merger. Post-closing, S&P estimates pro forma leverage of 3.2x for the combined company, with funds from operations (FFO) to debt temporarily dipping below the 23% threshold before recovering within 12-24 months after transaction close.
Both companies are expected to pause share repurchases after the second quarter of 2025 as stipulated in the merger agreement, though dividend payments will continue.
For Norfolk Southern as a standalone entity, S&P expects FFO to debt to be 27%-28% for 2025 and 29%-30% for 2026, with adjusted margins increasing to 48%-50% in 2025 as one-time costs related to the early 2023 derailment roll off. Revenue growth is projected to be flat to up 1% in 2025 and increase 2%-3% in 2026.
S&P could raise its ratings on Norfolk Southern if the merger completes without significant concessions and Union Pacific maintains its ’A-’ rating. Conversely, the outlook could revert to stable if the merger becomes unlikely to conclude or faces unexpected closing conditions.
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