Canadian Pacific Proposes Rail Merger With Norfolk Southern

Shares of Norfolk Southern rose 3.5 percent in extended trading following the announcement.

The deal would see Norfolk Southern shareholders own a 41 per cent stake in the combined company which would be listed on both the NY and Toronto Stock Exchanges.

In a press release accompanying the release of the letter on Tuesday morning, CP said it was trying to counter the “misconceptions” its offer is too low. Norfolk Southern’s board of directors and management team are committed to enhancing value for all stockholders.

CP said it “strongly believes that the combined railroad would offer unparalleled customer service and competitive rates that will support the success of the shippers and industries it serves, and satisfy the U.S. Surface Transportation Board and Canadian regulators”.

The company declined to be interviewed on Tuesday.

Ackman is now under pressure because of heavy losses in another Canadian company, Valeant Pharmaceuticals worldwide Inc, whose shares have plunged more than two-thirds since early August over concerns about its financial practices and drug pricing. The deal would help shift’s CP’s focus from commodities such as potash and grain to more container and automotive freight, goods that carry shipping premiums while requiring more attention to service.

Norfolk Southern operates 20,000 route miles in 22 states, mostly in Eastern United States, while Canadian Pacific transports to eight major ports in the United States and Canada, including Vancouver and Montreal.

The company did not disclose the price Tuesday, November 17, but said the offer includes a “sizable premium in cash and stock” to Norfolk shareholders. It said it would also give shippers the choice of where they could connect with other railroads on its network, and it would channel more traffic away from the congested hub of Chicago.

According to CP, the merger “would result in a company with the potential for faster earnings growth than either CP or NS could achieve on their own, while maintaining a strong investment-grade credit rating”.

“In addition to providing NSC shareholders with a significant cash payment, the proposed transaction will provide NSC shareholders with an opportunity for meaningful upside appreciation in the future as synergies are realized as NSC shareholders will own 41-per-cent of the new company”, CP said.