Canadian Pacific Drops Efforts to Merge With Norfolk Southern

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Photo: Bloomberg News

Canadian Pacific Railway Ltd. on Monday said it would drop its fight to merge with rival railroad Norfolk Southern Corp., saying it sees “no clear path to a friendly merger at this time.”

The company said it withdrew its resolution asking Norfolk Southern shareholders to vote in favor of good-faith negotiations and that it doesn’t plan any further financial offers or overtures.

Canadian Pacific has no plans to seek mergers with other railways, Chief Executive Hunter Harrison said in an interview. He said the company’s board decided to abandon its merger ambitions over the weekend as it became clear that political and industry opposition was too great.

“I doubt very much we will be reaching out to anyone else. We fought the good fight, we tried to educate the public, but the political and economic environment was against us,” he said.

A Norfolk Southern spokesman didn’t immediately respond to a request for comment.

Calgary, Alberta-based Canadian Pacific first launched a roughly $ 30 billion takeover bid for East Coast rival Norfolk Southern in November and was rebuffed by Norfolk, who said it undervalued the company. With a merger, Canadian Pacific sought to create a North American railroad that stretches from the West Coast of Canada to the Gulf of Mexico and Atlantic Ocean in the U.S.

It has been seeking to create a transnational U.S. railway since 2014 when it made an unsuccessful overture to CSX Corp.

After threatening a potential proxy fight, executives decided to strike a friendlier tone, calling for shareholders to vote yes for merger talks.

Late last month, Norfolk Southern Chief Executive Jim Squires said that the company was making good progress on restructuring plans and urged employees to vote no on merger talks. Separately, the railroad’s board indicated it would be willing to start merger discussions if Canadian Pacific “meaningfully” increased its offer.

It has also been unclear if U.S. regulators would sign off on such a deal. The U.S. Justice Department’s top antitrust official had raised competition concerns about the proposed voting-trust structure that would involve the two rail giants if they merged, saying it could allow the companies to accomplish much of the tie-up before a government review was completed.

Canadian Pacific had petitioned the U.S. Surface Transportation Board, whose approval is required for rail mergers, for an order that would allow the companies to operate during the estimated two-year period regulatory approval would take.

The pursuit being dropped is the latest blow to activist investor William Ackman, who had promised investors at Norfolk Southern that Canadian Pacific’s veteran CEO, Mr. Harrison, could repeat his turnaround success in Canada by eliminating expensive bottlenecks in the fragmented U.S. rail network. Norfolk has disappointed shareholders for years with one of the worst operating performances in the industry.

Shares of Norfolk Southern fell 2.4% in early trading to $ 79.50 while Canadian Pacific shares rose 2.7% to $ 138.38.

Write to Anne Steele at [email protected]


WSJ.com: US Business

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