January 19, 2017 / 6:20 PM / 10 months ago

UPDATE 1-Union Pacific CEO: 'we are opposed to' major railroad mergers

(Adds background on mergers, Union Pacific CEO comments on business outlook)

By Nick Carey

DETROIT, Jan 19 (Reuters) - The top executive at Union Pacific Corp said on Thursday that the No. 1 U.S. railroad remains opposed to mergers between major railroads in the United States.

News on Wednesday that Canadian Pacific Chief Executive Hunter Harrison was in advanced talks to team with a former Pershing Square Capital partner to shake up rival railroad CSX Corp fueled speculation Harrison would renew efforts to consolidate the U.S. rail industry.

Union Pacific CEO Lance Fritz told Reuters that “we still think Class 1 mergers in the United States are not a good idea.”

“We are opposed to Class 1 mergers at this time,” he said.

CSX shares rose nearly 19 percent on Thursday on the news of talks between Harrison and Paul Hilal’s fund, Mantle Ridge LP.

Union Pacific had publicly opposed a Canadian Pacific bid for No. 4 U.S. railroad Norfolk Southern Corp, which failed last spring in the face of criticism from customers and lawmakers.

Harrison has repeatedly touted U.S. rail industry consolidation as a way to improve efficiency and profitability.

Union Pacific on Thursday posted a better-than expected fourth-quarter profit and said it was optimistic about 2017 U.S. business conditions.

“It’s certainly a better environment than when we were entering 2016,” Fritz said.

He said that apart from rising energy prices, solid agricultural markets plus increased business and consumer confidence in 2017, coal freight volumes should benefit from higher natural gas prices and President-elect Donald Trump’s administration, which has promised to ease coal industry regulations.

Coal volumes have plunged in the past two years as utilities switched to burning cheaper natural gas and the strong U.S. dollar hurt coal exports.

“The anticipated regulatory scheme that’s going to come from the new administration looks more favorable to coal interests,” Fritz said. “But in the grand scheme of things, coal is still a challenged marketplace.”

On the other hand, Trump’s criticism of the auto industry building cars in Mexico for import into the United States as well as his threats to impose a “border tax” or roll back the North American Free Trade Agreement (NAFTA) has raised concerns for companies like Union Pacific.

Fritz said about 12 percent of Union Pacific’s business is linked to Mexico, but added that he is an “optimist” about NAFTA’s prospects under Trump.

“While I think NAFTA is ripe for modernization in labor practice, environmental practice and e-commerce, it also represents a boon to the U.S. economy,” he said. “It benefits the U.S. consumer and creates U.S. jobs.” (Reporting By Nick Carey; Editing by Chizu Nomiyama and Meredith Mazzilli)

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