Railway again spurns merger
Norfolk Southern calls Canadian Pacific bid ‘grossly inadequate.’
Norfolk Southern Corp. on Wednesday rejected a sweetened bid from Canadian Pacific Railway Ltd., moving the cross-border railroad takeover effort closer to a proxy fight.
The decision leaves Canadian Pacific Chief Executive Officer Hunter Harrison with a choice: abandon his quest to create a transcontinental railroad or go directly to Norfolk Southern’s investors to force a boardroom change, as he has said he may do.
“Your latest revised proposal is grossly inadequate,” Norfolk Southern said in a letter to Canadian Pacific, echoing language that it has used in previous rebuffs. The board’s decision was unanimous, the U.S. carrier said.
Canadian Pacific is reviewing Norfolk Southern’s response, spokesman Martin Cej said by email. He
declined to elaborate. The Calgary-based railroad said last week that its most recent proposal added an additional payout of as much as $3.4 billion. The rest of the offer was similar to a revised plan for $32.86 in cash and 0.451 share in the combined company for each share of Norfolk Southern. That offer valued Norfolk Southern at about $27 billion.
Shares of Norfolk Southern rose 78 cents to close Wednesday at $86.85 in New York. The shares gained 7.8 percent from Nov. 6, the last trading day before Bloomberg News
reported Canadian Pacific’s interest in a deal, through Tuesday, valuing the company at $25.7 billion. Canadian Pacific shares increased $2.22, or 1.76 percent, to $128.50.
Harrison, 71, has said he believes a proxy fight is likely if Norfolk Southern’s management and board continue to refuse to discuss a takeover. The pursuit of Norfolk Southern was the result of investors urging Canadian Pacific to pursue a merger and apply its efficiency gains to another railroad, Harrison has said.
Norfolk Southern has turned aside Canadian Pacific three times. The Norfolk, Va.-based railway reiterated Wednesday that it believes
the merger and the voting trust proposed by Canadian Pacific wouldn’t be approved by U.S. regulators. Norfolk Southern is the second-largest railroad in the eastern U.S., and Canadian Pacific is No. 2 in its home country.
Canadian Pacific’s latest bid included a contingentvalue right, which would entitle holders to receive a cash payment from Canadian Pacific equal to the difference between the combined company’s average share price during the six-month period ending Oct. 20, 2017, and $175 a share, up to a maximum of $25.
That offer would be inadequate even if the right’s value
were at the high end, Norfolk Southern said Wednesday.
“Our financial advisers believe that the CVR would trade at a significant discount,” the railroad said in its letter to Harrison and Canadian Pacific Chairman Andrew Reardon.
“You continue to publicly declare that we are not ‘engaging’ or ‘meeting’ with you,” Norfolk Southern CEO Jim Squires and Lead Director Steven Leer said in the letter. “There is no basis to meet until you both make a compelling offer and address the regulatory issues.”