It looks like Warren Buffett’s railroad conglomerate BNSF may make a bid for Norfolk Southern, potentially turning Canadian Pacific’s current offer for Norfolk into a bidding war.

In an interview on Thursday, BNSF Railway Executive Chairman Matt Rose said he does not support further North American rail mergers, but his company won’t sit by idly if there’s any new dealmaking in the sector, and could still make a bid for Norfolk Southern.

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A new BNSF bid for Norfolk would be much like Union Pacific Corp.’s efforts in the 1990s to “provide a competitive bid when the Burlington Northern and Santa Fe were merging,” Rose commented in the interview. “If there is consolidation to be had, we would participate as well.”

Norfolk southern canadian pacific BNSF
Chart via S&P Capital IQ

Possible bidding war for Norfolk Southern

Moreover, CSX Corp., Norfolk Southern’s east coast rival, would be “very much in play” if CP managed to snap up Norfolk, Rose said.

“We’ve never in this industry just done one merger,” Rose, who took over as executive chairman at BNSF in 2014. “You do a merger and then somebody else announces it because of this issue of stabilization of the industry and parity in various markets.”

Of note, CSX was up 1.2% at close to $25 in early trading, while Norfolk Southern gained 2.1% to $89.56. Rose said that he had notified  the CEOs (Mike Ward at CSX and Jim Squires of Norfolk Southern) were aware that BNSF was considering a bid.

“I’ve had general conversations with both of them and told them that we’re going to watch this with interest,” Rose noted, but would not provide further details.

Neither Norfolk Southern nor Canadian Pacific would comment for the media.

Barclays opined in a recent note:

The revised CP offer to Norfolk holders includes $33 in cash and 47% equity interest in the combined company. Based on our ‘simple’ math assuming prevailing equity multiples, we think the offer implies NSC share value of roughly $103. During the marathon CP conference call yesterday, both Mr. Harrison and Mr. Ackman welcomed analysts to opine on the revised offer. The CP team would like to highlight the offer is worth $125 to $140 per NSC share conditioned on STB approval. However CP math assumes (we think) valuing future synergy captured beyond 2016 as well as a future equity multiple applied to the combined company that is above current railroad valuation levels. Our more conservative outlook gives credit for 2016 synergies (NSC cost reduction) as well as capitalizing the company at current valuation levels of best in class stocks, CP and CN (roughly 10x EV / EBITDA).

BNSF undertakes "scenario planning"

While there haven’t been any combinations among major North American carriers in the 21st century, BNSF does “scenario planning every year,” Rose pointed out.

“We’ve thought about it long and hard,” Rose explained. “I have the advantage also of having an owner who does these things as a steady diet. So he’s very familiar with mergers and acquisitions.”