CP and Norfolk Southern in war of words


OMAHA, Nebraska—Canadian Pacific says one of the main reasons Norfolk Southern opposes merging the two railroads—concern about regulatory approval—is based on flawed assumptions.

Canadian Pacific issued a report Tuesday rebutting a similar report that Norfolk Southern issued and explaining why it believes regulators are likely to approve a merger of the two railroads.

Norfolk Southern has already rejected two cash and stock offers from the Canadian railroad, saying regulators wouldn’t approve the deal and investors would be better off if the Norfolk, Virginia, railroad remained independent.

Canadian Pacific executives plan to hold a second conference call with investors Wednesday to discuss the proposed merger and what steps it might take next.

The role federal regulators might play in a railroad merger like this is the subject of much speculation because no major railroad deals have been approved since the rules were toughened in 2001.

But Canadian Pacific said that Norfolk Southern is wrong to think the Surface Transportation Board wouldn’t approve the structure of a deal that calls for putting one railroad into a voting trust during regulators’ review. It said that tactic is common in railroad mergers because of the prolonged review needed.

Norfolk Southern consulted two former STB commissioners who predicted last week that concerns about competition and the structure of the proposal would doom this deal.

Canadian Pacific said it doesn’t believe its proposed merger with Norfolk Southern would necessarily trigger additional deals among the other major railroads.

“A Canadian Pacific-Norfolk Southern merger does not create a dominant carrier that would necessitate a reflexive merger in response,” Canadian Pacific said. “Rather, Canadian Pacific-Norfolk Southern would be better able to compete with the other large carriers.

In addition to raising regulatory concerns, Norfolk Southern has criticized the offers as “grossly inadequate.” Norfolk Southern estimates the latest offer is worth roughly $27 billion.

Canadian Pacific says the offer is worth somewhere between $37 billion and $42 billion because its estimate is based on the projected value of stock in a new company that would own both railroads.

Norfolk Southern Corp. shares rose $1.59, or 1.8 per cent, to $90.94 in afternoon trading Tuesday. U.S. shares of Canadian Pacific Railway Ltd. rose $2.07, or 1.7 per cent, to $125.10.