CP revises hostile bid for Norfolk Southern, again

Reuters — Canadian Pacific Railway slammed railway Norfolk Southern on Wednesday, accusing it of misleading investors even as CP executives rolled out a new bid with increased shareholder protections to acquire the U.S.-based railroad.

Executives from Canada’s second-largest railroad said the deal is now in the hands of Norfolk Southern’s shareholders, and urged its board to consider CP’s latest proposal even as industry skeptics questioned whether such a merger could gain U.S. regulatory approval.

“The only way it’s going to happen is if you show support for this transaction,” CP CEO Hunter Harrison told analysts on a conference call on Wednesday. “If you don’t want it to happen all you’ve got to do is tell us.”

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CP executives offered an additional 0.451 of a Contingent Value Right (CVR) in a new holding company for CP and Norfolk Southern that could be converted to cash and would increase the value of the deal by up to $3.4 billion, they said (all figures US$).

Described as a type of 15-month “insurance policy,” the CVR would protect shareholders in the event that the company’s stock value falls below $175 a share in October 2017. CP estimates the new holding company’s stock will be worth $204 at the transaction’s expected closing in May 2016.

The CVR was added to the terms of an offer previously rejected by Norfolk. For each share tendered Norfolk shareholders would now receive a CVR, along with $32.86 in cash and 0.451 of a share in a new holding company that would own both Norfolk Southern and CP.

Each railroad would be run separately by two different CEOs.

Norfolk Southern said in a statement on Wednesday that its board will “carefully consider” CP’s latest proposal.

A full merger between CP and Norfolk would require the approval of the U.S. Surface Transportation Board which introduced rules in 2001 that place additional hurdles for proposed rail mergers. Since then, no major proposed merger has come before the STB, so CP’s bid for Norfolk would be a test case.

If the merger is rejected by the STB the two railroads, CP and Norfolk Southern, would go back to trading as separate stocks, CP said.

“If this is going to be a street fight, so be it,” Harrison said. “The clock is ticking and it’s ticking down. And it’s time for some of us to take action.”

Allison Lampert and Euan Rocha report for Reuters from Montreal and Toronto respectively. Additional reporting for Reuters by Nick Carey in Chicago and Svea Herbst-Bayliss in Boston.

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