While CEO Warren Buffett dismissed reports that Berkshire Hathaway’s BRK.B BNSF railroad was working with Goldman Sachs GS on a possible merger with CSX CSX, the company really needs to be looking at a potential deal.

Why it matters: Reports that Union Pacific UNP was in talks with Norfolk Southern NSC about a potential tie-up were borne out last week by an affirmation from Union Pacific management that it was in “advanced” discussions about a merger.

• We’ve always considered a tie-up between one of the two main western railroads (BNSF or Union Pacific) with one of the two main eastern railroads (CSX or Norfolk Southern) to be strategically favorable for both carriers, as it would create a transcontinental US railroad marked by nascent, seamless service corridors that avoid the interchange bottleneck in Chicago, making them even more truck-competitive, especially for intermodal shipments.
• Absent government intervention, we believe the rational number of Class-I railroads in North America would be fewer than six, due in large part to benefits from efficient scale. In most regions, shippers already have only two capable providers that effectively service the market.

The bottom line: Berkshire had more than $330 billion in cash on hand (including $290 billion in dry powder) at the end of March 2025, so a deal the size of CSX would not be an issue. Our $730,500 ($487) per Class A (B) share fair value estimate remains in place for the narrow-moat firm.

• BNSF is already trailing Union Pacific from a profitability perspective, so the last thing it needs is to worsen its competitive position by not pursuing a transcontinental US railroad footprint, which would require that it buys either Norfolk Southern or CSX in the event Union Pacific goes that route.
• With Berkshire averse to engaging in bidding wars, we don’t see it chasing Norfolk Southern if Union Pacific makes an offer. But Berkshire won’t have the luxury of waiting for CSX, because one of the two Canadian railroads could decide to pursue CSX to broaden their reach or just be a spoiler.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

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