Union Pacific and Norfolk Southern’s growth-oriented merger argument remains sound, but the bid-ask spread on competitive concessions remains unknown until the rails respond. Downstream, we view today’s filing as constructive for domestic
The Union Pacific+Norfolk Southern merger terms were largely as expected. NS can walk away from UP for an unsolicited better offer ($11/share break fee), but a BNSF-CSX combination is more likely than a Berkshire Hathaway bidding war with UP. The regulatory timeline to 1H27 was also expected, but lack of a voting trust and the right to walk if STB imposes certain conditions favor UP.
We have increased conviction that railcar leasing fundamentals will remain exceptional through 2025, while rising economic and tariff uncertainty suggest lower for longer railcar orders with downside risks to nearer-term new car
Three days with hundreds of rail equipment industry participants at Rail Equipment Finance 2023 reveal a railcar market that is healthier than we’ve feared into 2023 (lease rate inflation overwhelming the demand-side drag from anemic rail volumes), while the runway for continued investment in diesel locomotives appears to stretch into the 2030s (both rebuilds and new).
