CP Rail steps up Norfolk overtures

Canadian Pacific Railway Ltd. is willing to sweeten its US$28 billion takeover offer for Norfolk Southern Corp. and is “going to do everything we can” to court the U.S. carrier’s shareholders, chief executive officer Hunter Harrison said.

After an initial meeting last week with Norfolk Southern management ended inconclusively, getting the deal moving will take “a little more money” and pressure from investors, Harrison said Friday.

“I prefer not to use the word hostile — you all can describe it as you see fit,” Harrison said. “We’re going to work diligently to get to the shareholders. They deserve to see this, to understand it. We’ve already at their request shared the strategy. Some of them came to us and said: ‘Make a move.’”

Harrison’s comments escalated his campaign to create a transcontinental railroad by combining Canada’s second-largest carrier with the No. 2 operator in the eastern U.S. The CEO, a veteran railroader recruited out of retirement to lead Canadian Pacific by activist investor Bill Ackman, is bucking the long-held industry view that the era of big mergers is over.

Canadian Pacific doesn’t want to surrender its investment-grade credit rating, which will put a cap on how high an offer the Calgarybased railroad may make, Harrison said, while declining to elaborate on the terms.

“We’re not going to go crazy,” Harrison said. “I’m not in love with a deal. So is there a place where we are going to say: ‘Price is too high. We’re walking’ Absolutely.”

Norfolk Southern acknowledged the merger overture on Tuesday, eight days after Bloomberg News reported that Canadian Pacific was exploring a bid. It labelled Canadian Pacific’s offer “unsolicited, lowpremium, non-binding and highly conditional indication of interest” that was less than 10 per cent higher than the day’s closing price. Norfolk Souther n surged 22 per cent through Friday from Nov. 6, the last trading day before Canadian Pacific’s interest was reported, while the Standard & Poor’s 500 Index slid 0.5 per cent. Canadian Pacific jumped 11 per cent in that span.

Norfolk Southern rose 0.7 per cent to US$97.56 Friday in New York. Canadian Pacific gained 0.8 per cent to $198.88 Friday in Toronto.