Norfolk Southern answers CP

Norfolk Southern answers CP

Norfolk Southern answers CP In November, Canadian Pacific, the railway company operating in the US and Canada, announced its desire to merge with Norfolk Southern. They believed that creating a transcontinental railroad would enhance competition and increase significant shareholder value.
 
However, after a few weeks of consideration, the Norfolk Southern’s directors gave a unanimous “no” to the proposed merger. This came after the company consulted financial and legal advisors and found that the interest suggested by Canadian Pacific was  ‘grossly inadequate, creates substantial regulatory risks and uncertainties that are highly unlikely to be overcome, and is not in the best interest of the Company and its shareholders.’
 
Canadian Pacific valued Norfolk Southern’s shares at around $97 a share which included a combination of cash and stock.
 
Norfolk Southern believes they are able to increase value for its shareholders alone.
 
“We believe in our ability to generate greater shareholder value through execution of our strategy – delivering efficient and superior service to build a more profitable franchise based on price and volume growth, implementing efficiency measures, and increasing returns on capital to strengthen our financial performance, all while maintaining our disciplined capital return strategy,” said James A. Squires, chairman, president and CEO of Norfolk Southern.
 
Regulation was also a potential issue for the Vancouver based company.
 
“There is a high probability that, after years of disruption and expense, the proposed combination would be rejected by the Surface Transportation Board (“STB”). We also believe the STB would reject Canadian Pacific’s proposed voting trust structure, and that there is no certainty that any other voting trust structure would be approved.” 
 
The U.S. Surface Transportation Board has been known to prevent such proposed mergers for fear of railroad monopoly and a lack of competition in the market.
 
Addressing these concerns, Canadian Pacific had said they would allow other railroads to use their tracks and terminals as well as giving shippers the choice of where they can connect with another railroad along its network. They said that this would bring an end to the practice of "bottleneck pricing" and further enhance competition.
 
If Norfolk Southern had voted yes, the merger would have meant a rail network owned by a single giant that would span from Canada to the Gulf of Mexico.