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Investing.com -- Fitch Ratings has placed Union Pacific Corporation’s (NYSE:UNP) ’A-’ Long-Term Issuer Default Rating on Rating Watch Positive following the announcement of its merger with Norfolk Southern (NYSE:NSC).
The rating agency believes the creation of the nation’s first transcontinental railroad would enhance Union Pacific’s business model resilience and competitive positioning through greater geographical diversification and network efficiencies.
The combined entity would generate revenue exceeding $36 billion with EBITDA margins approaching 50%. Leverage is expected to peak in the mid-3.0x range at closing before falling below 3.0x within 12-18 months, supported by $3 billion-$3.5 billion in pro forma year-one free cash flow and suspension of share repurchases.
Fitch forecasts that Union Pacific’s standalone free cash flow after dividends will be in the mid-$2.0 billion range for 2025-2026. Following the merger, capital expenditures are expected to temporarily increase to support growth initiatives, resulting in pro forma free cash flow of about $3.3 billion in 2027.
The merger would create a nationwide network that reduces interchange friction and transit time, improving rail competitiveness against trucking. This would particularly benefit long-haul west-east freight lanes and support rail as a more viable option in areas where trucking currently has advantages.
The combined network would connect to 10 international gateways and approximately 100 ports, enhancing competitive positioning compared to regional players.
Fitch expects to resolve the Rating Watch after the merger closes, which is anticipated between late 2026 and early 2027.
For 2025, Fitch projects low single-digit revenue growth for Union Pacific with EBITDA margins improving to 50% from 49% in 2024. The company has paused share repurchases beyond the second quarter of 2025 to build liquidity for the merger.
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