Toronto Star

Canadian Pacific escalates takeover bid campaign

Merger concept intriguing to some Norfolk Southern shareholde­rs, CP CEO says


Canadian Pacific Railway Ltd. is willing to sweeten its $28-billion (U.S.) 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 in an interview at Bloomberg’s headquarte­rs in New York.

“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.’ They’re big holders. They’re players, and there’s not only one.”

Harrison’s comments escalated his campaign to create a transconti­nental railroad by combining Canada’s second-largest carrier with Norfolk Southern, 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.

Harrison returned several times to the idea that Norfolk Southern shareholde­rs found the concept of a combinatio­n intriguing. Some even suggested he explore a deal, he said.

“It’s fair to say we’ve had a good bit of dialogue with their shareholde­rs,’’ he said. “Some of them brought these ideas to us, whether we already had them or not. If it’s a good deal for the shareholde­rs, why is it not a good deal for the overall organizati­on? They’re going to have to answer that. I can’t.”

Canadian Pacific doesn’t want to surrender its investment-grade credit rating, which will put a cap on how high an offer the Calgary-based 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.”

Harrison also said he planned to reach out again Friday to CEO James Squires at Norfolk, Va.-based Norfolk Southern.

“Given some of their wants, we’re happy to sit down with them,” Harrison said. “In fact I think there’ll be some correspond­ence going out to them today saying ‘Let’s sit down and talk.’ Through an email.’’

Norfolk Southern acknowledg­ed the merger overture on Tuesday, eight days after Bloomberg reported that Canadian Pacific was exploring a bid. It labelled Canadian Pacific’s offer “unsolicite­d, low-premium, non-binding and highly conditiona­l indication of interest” that was less than10 per cent higher than the day’s closing price. A spokesman, Frank Brown, declined to comment when asked about Harrison’s remarks.

The signals of non-interest aren’t deterring investors. Norfolk Southern 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 $97.56 Friday in New York. That exceeded the $94.02 price that was indicated based on Canadian Pacific’s offer of $46.72 in cash and 0.348 share of stock, as of the Nov. 13 close. Canadian Pacific gained 0.8 per cent to $198.88 (Canadian) Friday in Toronto.

Even if Norfolk Southern eventually assents, regulators are one challenge for consummati­ng a deal. Opposition from the U.S. Surface Transporta­tion Board spurred the collapse of the last proposed transconti­nental tie-up — a Burlington Northern Santa Fe Corp.-Canadian National Railway Co. merger in 2000.

Harrison said Canadian Pacific’s approach takes into account the views of regulators and shippers, with steps such as opening up some terminals so customers would have more rail choices.

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