Norfolk Southern Corp Rejects Canadian Pacific Railway Limited Acquisition Offer

Norfolk Southern Corp. soundly rejected Canadian Pacific Railway Ltd.’s more than $28 billion offer, saying the combination of the two companies would create a “smaller, geographically inferior” railroad to those that would result from mergers triggered by the deal.

Canadian Pacific Chief Executive Officer Hunter Harrison had said the carrier probably would need to increase its offer and that shippers had given him positive feedback on his plan to give customers more say on how their freight is handled by the combined railroad. The Virginia-based company says the plan floated by Canada’s second-largest railway is, in its terms, “grossly inadequate”.

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“We believe in our ability to generate greater shareholder value through execution of our strategy – delivering efficient and superior service to build a more profitable franchise based on price and volume growth, implementing efficiency measures, and increasing returns on capital to strengthen our financial performance, all while maintaining our disciplined capital return strategy”, Squires said in a statement on December 4.

Squires said there was a “high probability” that the deal would be rejected by the Surface Transportation Board.

While Squires declined to indicate if Norfolk’s board of directors would be receptive to an improved proposal, he was doubtful that any transaction could win regulatory approval in the U.S.

“In short, Norfolk Southern is well positioned to deliver compelling value to our shareholders”. “We view, based on that advice, the hurdles as very substantial”.

He said the merger would be a poor fit in part because the two serve separate regions, only connecting at five points, which “severely” limits the opportunities for operating synergies. Harrison has said that a combination would ease congestion in the eastern United States, where Norfolk Southern is the No. 2 operator, and offer customers more choices through such steps as opening up terminals to other railroads.

Canadian Pacific said it’s reviewing Norfolk Southern’s response. He also said as much as 60% of Norfolk Southern’s general merchandise business, which includes coal, would be open to poaching. Even if it were approved, Norfolk Southern said it would be “in limbo” for that time period, “causing loss of momentum and disruption to our business and operations”.