M&A chatter swirls around Union Pacific and Norfolk Southern. This is why a deal makes sense. Merger talk is swirling around Union Pacific Corp. and Norfolk Southern Corp. in a deal that could create a railroad mega-carrier and a huge transcontinental network spanning the U.S.

A merger would be likely to face major regulatory scrutiny. CSX Corporation ( NASDAQ: CSX) has a market cap of over $62 billion, and Norfolk Southern ( NYSE: NSC) has a market cap of over $59 billion.

The report by news website Semafor said Union Pacific, which operates in 23 western states, was working with investment bankers at Morgan Stanley to pursue a deal with one of the two major eastern railroads, CSX or Norfolk Southern. Union Pacific CEO Jim Vena has made public comments about his interest in creating a transcontinental railroad.