CP abandons Norfolk Southern takeover

Canadian Pacific Railway has terminated efforts to acquire the number four U.S. railroad, including the withdrawal of a resolution asking NS shareholders to urge its board to engage in negotiations, according to a statement from the company.    Canadian Pacific Railway has officially abandoned its attempt to acquire number four U.S. railroad Norfolk Southern Corp., according to a statement from the company.
   The Calgary-based Class I railroad said it has terminated efforts to merge with NS, including the withdrawal of a resolution asking shareholders to urge the board to engage in negotiations that would have been voted on at NS’s annual meeting in May. No further financial offers or overtures to meet with the NS board of directors are planned at this time, CP said.
   “We have long recognized that consolidation is necessary for the North American rail 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,” said CP CEO E. Hunter Harrison.
   The announcement comes after the U.S. Department of Justice on Friday urged the Surface Transportation Board (STB) to reject a petition from CP for a declaratory order regarding the use of a voting trust as part of the acquisition.
   The voting trust structure would have essentially allowed CP to begin running the show over at NS well in advance of the deal being approved by the relevant regulatory authorities.
   The Justice Department filed a reply in opposition to CP’s petition on the basis that the proposed voting trust would “fail to preserve the independence of the merging railroads” prior to regulatory review by the STB and “would risk harm to current and future competition,” the department said in a statement.
   The department said the STB could do this either by rejecting the proposed voting trust structure outright, or by denying CP’s request for a declaratory order.
   “Canadian Pacific’s voting trust proposal would compromise Norfolk Southern’s independence and effectively combine the two railroads prior to completion of the STB’s review,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.
   “That makes no sense. We urge the STB to preserve its ability to review the impact of the proposal on competition and consumers before Canadian Pacific starts scrambling the eggs.”
   Just a day earlier, CP released a fourth white paper touting the merits of a merger with NS, arguing that the same “precision railroading philosophy” that has taken CP from “industry laggard to leader over the last four years” would “transform Norfolk Southern Corp. (NS) and eventually build a leading transcontinental railway in North America.”
   CP has been courting NS for months now, offering up three separate cash-and-stock bids valued at around $30 billion. NS, however, has been resolute, rejecting each of the unsolicited offers as “grossly inadequate” and unlikely to be approved by the STB.
   CP last month filed a petitioned with the STB for a declaratory order approving a voting trust structure pending the agency’s review of its proposed takeover of NS. 
   Under the proposed voting trust structure, which also drew opposition from Sens. Mike Lee, R-Utah, and Amy Klobuchar, D-Minn., the top members of the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, Canadian Pacific Railway Limited (CPRL), the holding company that owns CP, would have acquired NS and CP’s stock would have been placed in trust. Current CP CEO E. Hunter Harrison would have become chief executive of NS, and current CP Chief Operating Officer Keith Creel would have taken over for Harrison at CP.
   “As explained in the filing, this proposed voting trust structure fails under each prong of the STB’s regulatory requirements,” said the Justice Department.
   “The proposal fails to preserve the independence of NS and CP. In addition, both CP and NS will have the economic incentives and the ability to align their business strategies before a review of the transaction. Finally, the proposal would also make it difficult, if not impossible, to effectuate a successful divestiture if the STB were to reject the merger applications.”
   The department noted that the STB is an independent agency, and the Administrative Procedure Act provides the STB discretion to issue declaratory orders, but its opposition would almost certainly have had an impact on the STB’s decision.