CP continues to pursue NS merger

Canadian Pacific published a third white paper regarding its proposed acquisition of Norfolk Southern Corp., and the U.S. Surface Transportation Board has begun to receive letters from rail customers in support of the controversial takeover.    Canadian Pacific seems unfazed by its lack of success in convincing Norfolk Southern Corp. to accept its unsolicited advances.
   The Calgary-based railway this week published a third white paper regarding its proposed acquisition after being repeatedly rebuffed by NS management. Since November, NS has rejected three separate stock-and-cash offers from CP, deeming the estimated $30 billion bids “grossly inadequate” and unlikely to win regulatory approval from the U.S. Surface Transportation Board (STB).
   CP’s latest white paper, “CP-NS: A Comprehensive Approach to Regulatory Approval,” aims to dispel the latter portion of NS’s counter arguments.
   “In advancing its proposal to combine CP and Norfolk Southern Corp. (NS), CP is confident that the proposal can meet this standard and its voting trust structure will be approved because a CP-NS combination will more than satisfy the STB’s public interest standard by introducing features that will enhance competition through a number of shipper-friendly options,” CP said in the white paper.
   Further, the railway argued, a tie-up with NS would form a transcontinental railroad “with the scale and reach to deliver unsurpassed levels of service and safety to customers and communities while increasing competition, supporting continued economic growth and creating significant shareholder value.”
   In response, Norfolk, Va.-based NS said in a statement, “The fact that CP has not sought a declaratory order from the STB for its voting trust structure shows that it has no confidence that it would ever be approved. CP’s white paper does nothing more than repeat CP’s misleading and flatly wrong statements about the regulatory hurdles to a transaction.”
   Meanwhile, the STB last month began receiving letters from rail customers in favor of the proposed takeover. The letters from Dakota Plains Holdings Inc. and other shippers to the STB stand in stark contrast to the chorus of voices who have, until now, seemed to unanimously oppose the merger.
   “Dakota Plains believes a CP-NS combination will create a transcontinental railroad with the scale and reach to deliver improved levels of service to us and enable us to better serve our own customers and communities, while improving safety and enhancing competition,” Dakota Plains President and CEO Gabe Claypool said in the letter.
   CP has repeatedly argued it could manage the railway better than current NS executives, and has said it would be willing to take its offer directly to shareholders and initial a proxy fight to install new leadership. But other major railroads like CSX Corp., Union Pacific Corp. and BNSF Railway have voiced strong opposition to the merger, along with members of Congress, unions and even NS customers
   The railway in January even went as far as to ask the U.S. Justice Department to investigate what it called a “collective campaign” by North America’s other Class I railroads to block its attempt to take over Norfolk Southern.
   For it’s part, the STB has a running list of correspondence regarding the proposed purchase on its website, but notes, “At this time, there is no proceeding before the agency related to a merger of CP and NS.”