(Reuters) — U.S. railroad operator Norfolk Southern Corp. all but rejected a US$28.4 billion acquisition offer by Canadian Pacific Railway Nov. 17.
The U.S. railway called the offer “low premium” and warned it would face significant regulatory hurdles.
Norfolk Southern said it would evaluate the offer, but its sour response is a setback to CP as well as its largest shareholder, William Ackman’s activist hedge fund Pershing Square Capital Management LP. Ackman is a big advocate of North American rail consolidation.
If successful, the merged companies would become the largest railway in North America.
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CP argues that the combined railroad would offer unparalleled customer service and competitive rates for shippers and that it would satisfy the U.S. Surface Transportation Board and Canadian regulators.
The STB has a public interest test when considering whether to approve mergers, so a deal would not only have to address antitrust concerns but also result in im-proved service, economic efficiencies and public safety for those using the railways.
CP said the proposed merger would help the combined company save at least $1.8 billion annually and would also have substantial tax benefits.
The share price of both companies rose following the news.
A source said CP failed to convince Norfolk Southern that the merger could receive regulatory clearance, and it also offered no protection for Norfolk Southern shareholders in case the deal is blocked.
CP is offering Norfolk Southern shareholders $46.72 in cash and 0.348 CP shares for every Norfolk Southern share they own, Norfolk Southern said in its statement.
That works out to about $94.94, a nine percent premium to Norfolk Southern, based on both stocks’ Nov. 17 close.
CP chief executive officer Hunter Harrison told a transportation conference in Florida that the bid was a starting point for discussions.
