CP Rail’s (TSX:CP) tempestuous courtship of Norfolk Southern Corp. (NYSE:NSC) is over.
The railway announced this morning (April 11) its decision to terminate its push to acquire the U.S. railway and transportation company in the wake of repeated Norfolk rejections of CP overtures.
In a CP statement, company CEO Hunter Harrison said consolidation is needed in the North America railway industry “to meet the demands of a growing economy, but with no clear path to a friendly merger at this time, we will turn all of our focus and energy to serving our customers and creating long term value for CP shareholders.”
CP began its pursuit of Norfolk in late 2015.
Its offers to the Virginia-based railway included an arrangement to close the deal into a voting trust that would have given shareholders what CP maintained was “a substantial cash payment and shares in a new investment grade company which would be listed on both the NYSE and TSX.”
Under the trust arrangement, an independent trustee would have been appointed to oversee the operations of either CP or NSC, and, regardless of which was placed in trust, Harrison would have become CEO of NSC and severed all economic and other ties with CP.
According to CP numbers, Harrison, the former head of Canadian National (TSX:CNR), has increased returns to CP shareholders 306% since he took over as CEO in June 2012.
CP estimated that base revenue growth of the merged CP-NSC company would have been 3% beyond 2018, when the new entity would be fully up and running.
It claimed the new entity would achieve $1.8 billion in operating efficiencies and synergies and provide shippers in Canada and the United states with better access to tidewater shipping facilities and major metropolises east of the Mississippi via one major efficient rail network that would allow freight to reroute around such major bottlenecks as Chicago.
However, that deal was rejected by Norfolk’s chairman and CEO Jim Squires as being “even more uncertain and risky” than CP’s offer tendered in the previous month.
Earlier this year, CP softened its approach to the merger push, saying it planned to submit a resolution to Norfolk’s shareholders to request that its board “engage in good faith discussions with CP regarding a business combination transaction involving CP and NSC that would create a true end-to-end transcontinental railroad that would enhance competition, benefit the public and drive economic growth.”
In a statement responding to CP’s decision to abandon its Norfolk merger initiative, NSC said it had been focused “on implementing a strategic plan to streamline operations, reduce expenses and maintain superior customer service levels.”
It claimed it was on track to achieve annual productivity savings of more than US$650 million.
CP’s stock price was up 3% to $180.40 on the news of the abandoned merger plan. Norfolk’s was down 2% to US$79.82 in early morning trading.
