CP said the deal, assuming it closes on December 31, 2017, would bring Norfolk Southern shareholders a 59-per-cent premium based the shares’ 45-day volume-weighted average price of $79.14. However, NS feels that “any consolidation among Class I railroads in North America would face significant regulatory hurdles”.
Advertisement
While Norfolk Southern said it would carefully evaluate the offer, its sour response represents a setback to Canadian Pacific as well as its largest shareholder, William Ackman’s activist hedge fund Pershing Square Capital Management LP.
On Tuesday night, Norfolk Southern said the unsolicited offer was just a 10-per-cent premium over the day’s closing share price.
Norfolk Southern Corporation (NYSE: NSC) is one of the nation’s premier transportation companies.
The Wall Street Journal previously reported that the chief executives of the two railroads met Friday, and that CP’s interest in a deal was met with a cool reception by Norfolk Southern.
CP CEO Hunter Harrison has long advocated consolidation in the rail industry to ease congestion and transport goods more efficiently across the continent.
Norfolk Southern during its most recent earnings conference call was questioned by analysts for increasing its number of employees this year, even as volumes fell and its service performance continues to lag competitors. Canadian National Railway Co’s bid to buy Warren Buffett-owned Burlington Northern Santa Fe was blocked by USA antitrust authorities in 1999-2000.
In addition, affected communities, environmentalists and other interested parties would have the ability to weigh in on the merger and ask for concessions.
To mitigate shipper concerns over a reduction of competition, CP has proposed “a new approach to terminal access”, which would allow another carrier to operate over the merged railroad’s tracks and access its terminals “in the event the new company failed to provide adequate service or competitive rates”.
In the letter dated November 9, CP says the cash and stock offer of $46.72 a share and 0.348 in stock is a “substantial” premium to form a combined company that will be able to achieve more than $1.8-billion in cost savings “over the next several years”.
Advertisement
Carolyn King contributed to this article.
