(Reuters) -Union Pacific said on Tuesday it would buy smaller rival Norfolk Southern in an $85 billion deal, to create the nation's first coast-to-coast freight rail operator and reshape the movement of goods from grains to autos across the country.

If approved, the deal would combine Union Pacific's stronghold in the western two-thirds of the U.S. with Norfolk's 19,500 mile network that primarily spans 22 eastern states.

The two railroads are expected to have a combined enterprise value of $250 billion and would unlock about $2.75 billion in annualized synergies, the companies said.

This would mark the largest-ever buyout in the sector, merging Union Pacific, the biggest U.S. railroad operator, with Norfolk, one of the top players, granting the combined company transcontinental dominance.

On Thursday, the two companies had said they were in advanced discussion for a possible merger.

The transaction faces numerous regulatory hurdles and will serve as a key test of the changed thinking around antitrust issues under President Donald Trump.

Since early 2025, the U.S. Surface Transportation Board, the federal regulatory agency overseeing railroads, has signaled a more industry-friendly approach to merger reviews.

Chairman Patrick Fuchs, appointed to the post in January by Trump, has advocated for faster timelines for preliminary assessments, a greater focus on competitive balance rather than blocking consolidation, and a willingness to enforce conditions post-merger rather than deny deals preemptively.

Union Pacific's deal for Norfolk would also need support from labor unions and could invite scrutiny from several other federal agencies.

Major railroad unions have long opposed consolidation, arguing that such mergers threaten jobs and risk disrupting rail service.

"We will weigh in with the STB (regulator) and with the Trump administration in every way possible," said Jeremy Ferguson, president of the SMART-TD union's transport division, after the two companies said they were in advanced talks last week.

"This merger is not good for labor, the rail shipper/customer or the public at large," he said.

The SMART-TD union's transport division is North America's largest railroad operating union with more than 1,800 railroad yardmasters.

The North American rail industry has been grappling with volatile freight volumes, rising labor and fuel costs, and growing pressure from shippers over service reliability, factors that could further complicate the merger.

CONSOLIDATION

The talks have also prompted competitors BNSF, owned by Berkshire Hathaway, and CSX, to explore merger options, people familiar with the matter said.

Agents at the STB are already conducting preparatory work, anticipating they could soon receive not just one, but two megamerger proposals, a person close to the discussions told Reuters on Thursday.

If both mergers are approved, the number of Class I railroads in North America would shrink to four from six, consolidating major freight routes and boosting pricing power for the industry.

The last major deal in the industry was the $31 billion merger of Canadian Pacific and Kansas City Southern, which created the first and only single line rail network connecting Canada, the U.S., and Mexico.

That deal, finalized in 2023, faced heavy regulatory resistance over fears it would curb competition, cut jobs, and disrupt service, but it was ultimately approved.

(Reporting by Shivansh Tiwary and Sabrina Valle, additional reporting by Abhinav Parmar and Mariam Sunny; Editing by Sriraj Kalluvila)