What: Shares of railroad Norfolk Southern Corp. (NSC -3.60%) jumped as much as 14% in afternoon trading after Bloomberg reported that the company may be an acquisition candidate.
So what: According to Bloomberg, Norfolk Southern has been approached by Canadian Pacific Railway (CP -6.60%) about a potential merger. Ironically, Canadian Pacific is the smaller of the two companies even though it's reportedly leading the talks.
The deal would be heavily scrutinized by regulators, who have seen consolidation leave the rail industry with a few small players and who played a role in squashing the Canadian Pacific/CSX tie-up last year.
Now what: Right now, merger talks are speculation, and that's all buying the stock on today's news would be. It's also very early to say whether the merger would be good for shareholders at all short-term. Canadian Pacific is a smaller company and doesn't have the cash to pull off an acquisition, so it may be offering shares, leaving the companies to squabble over who gets what in a deal.
While merging these two rail giants makes a lot of sense from a business perspective, it's a long haul to get a deal approved. Investors should watch to see if this speculation becomes any kind of reality in coming days and what the terms are. If the deal falls apart, both stocks could sink again and that's the danger I think investors should be worried about today.
