Norfolk Southern rejects CP Rail proposed merger

NORFOLK, Va. – Norfolk Southern Corp.’s board is rejecting a merger proposal from Canadian Pacific Railway (TSX:CP).

The Virginia-based company says the plan floated by Canada’s second-largest railway is, in its terms, “grossly inadequate.”

Norfolk Southern also says the proposal would face significant regulatory hurdles and uncertainties.

Calgary-based CP Rail is offering US$46.72 in cash plus shares in a new company that would own both railway operators.

Canadian Pacific has argued that the deal would improve efficiency and a broader transcontinental network, which would span Canada and significant portions of the continental United States.

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In particular, CP is aiming to bypass a congested transportation hub in Chicago and increase its network presence in the eastern United States, where Norfolk Southern has its base.

Norfolk Southern’s chairman, president and chief executive – James Squires – says the company can create more value for shareholders as an independent company.

“Norfolk Southern has made growth investments and we expect to realize the benefits of these investments in the years ahead, especially as our intermodal volumes continue to build,” Squires said in a statement Friday.

“We believe that Canadian Pacific’s short-term, cut-to-the-bone strategy could cause Norfolk Southern to lose substantial revenues from our service-sensitive customer base. We also believe the proposed transaction risks harm to vital transportation infrastructure and the communities we serve.”

As recently as this week, CP Rail’s chief executive said that that he was very pleased with the response to the proposal that was first announced Nov. 17.

Canadian Pacific CEO Hunter Harrison told an industry conference on Wednesday that CP had received positive feedback from shareholders and shippers.