Warren Buffett Quashes BNSF-CSX Merger Rumors as Railroads Roll Out Coast-to-Coast Services
BNSF Railway and CSX are introducing two coast-to-coast intermodal rail services as the railroads cozy up amid a pending Union Pacific-Norfolk Southern merger.
However, a merger seems to be out of the cards. According to a CNBC report Monday, Warren Buffett, CEO and chair of BNSF parent Berkshire Hathaway, told the network he was not in the market to buy another railroad.
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According to Buffett, he and successor Greg Abel met with CSX CEO Joe Hinrichs on Aug. 3, days after the UP-NSC merger took place. But that chat only discussed greater cooperation between the railroads, he said, making it clear that Berkshire would not make a bid for CSX.
CSX stock dropped more than 6 percent after the CNBC report’s publication just before 1 p.m. Eastern time.
Buffett had already denied previous reports that BNSF had spoken with Goldman Sachs to facilitate a deal as merger chatter began heating up.
The cooperation referred to by Buffett has come in the form of new direct domestic routes between Southern California and two southeastern cities: Charlotte, N.C. and Jacksonville, Fla. In addition, a new service will also be launched between Phoenix and Atlanta, aiming to convert over-the-road (OTR) freight to rail.
The railroads will also debut new direct international intermodal services between the Port of New York and New Jersey and Norfolk, Va., and Kansas City, Mo.
“Together, we’re opening access to key markets and strengthening options for our mutual customers,” said Drew Johnson, vice president of intermodal sales and marketing at CSX.
Jon Gabriel, group vice president of consumer products at BNSF, said the offerings will provide “immediate, streamlined service to the supply chain” across these markets.
A report from Reuters indicated that Friday’s announcement stems from ongoing commercial agreements between the rail operators and predates last month’s merger announcement. Such deals help railroads expand their service offerings without undergoing structural changes.
When Union Pacific and Norfolk Southern agreed to merge in late July in a cash-and-stock transaction worth $85 billion, it set to clear way for the first-ever transcontinental railroad across the U.S. It also brought together two railroads concentrated on the western and eastern U.S. with scant overlap only in cities like Chicago, New Orleans, Memphis and St. Louis.
That pending deal still needs approval from the Surface Transportation Board (STB), but would create a 46 percent market share for intermodal container traffic transported by rail, according to data from the regulator.
Such a deal put the remaining two U.S. Class I railroads BNSF and CSX under the microscope as they seek to better compete in an environment with one colossal rail player. A combined CSX-BNSF would have outpaced the new Union Pacific in market share by just one percentage point at 47 percent.
The overt partnership between BNSF and CSX had brought into question the future of the railroads, and whether a merger attempt would come to fruition, as has been rumored.
Jonathan Chappell, senior managing director in the transportation team at Evercore ISI, indicated in a recent research note he doesn’t see the new partnership as a full replacement for a potential CSX-BNSF combination, which would have left the door still open for potential merger activity.
Chappell saw the move as a confirmation that BNSF and CSX would take a “wait and see” approach in reaction to how the UP/NSC merger plays out.
“New service collaborations do not have to be mutually exclusive with an eventual merger,” Chappell said. “In fact, a successful integration of the new services could end up being a precursor to a deeper end-game collaboration between the two rails.”
BMO Capital Markets transportation analyst Fadi Chamoun said the partnership signaled BNSF’s “low appetite for a merger” in the near term.
“This doesn’t mean BNSF fully ruled out participating in consolidation, but perhaps the company is not convinced in the merits of full-on consolidation and will be patient,” Chamoun speculated.
For CSX, the railroad still has an activist investor hot on its heels that could sway the company in a different direction. Minority shareholder Ancora Holdings said it wanted the company to engage in merger discussions with both BNSF and Canadian Pacific Kansas City (CPKC). If neither option was considered, the hedge fund said it would push for the ousting of Hinrichs.
Ancora also shared concerns that CSX will be at a major disadvantage if it is not able to achieve scale through a merger and participate in the same regulatory review process encountered Union Pacific and Norfolk Southern.
CSX hasn’t shied away from both the activist pressure or the media reports, indicating that it welcomes all opportunities to bolster shareholder value at the company.
There is still a long way to go for the UP-NSC merger to get approval from the STB, with both parties expecting the deal to close in early 2027—roughly 18 months from now.