Norfolk Southern knocks back second CP takeover offer

NS had decried initial offer as inadequate and unlikely to pass regulatory scrutiny, and Canadian Pacific’s new offer includes a lower cash component and larger share in a proposed holding company that would own both Class I railways.    Canadian Pacific Railroad on Tuesday made a second move to acquire Norfolk Southern after an unsuccessful offer in November that the Virginia-based railroad called “grossly inadequate.”
   The revised offer was also quickly dismissed by NS leadership, with the company noting in a statement that “the consideration offered in this revised proposal is less than the prior proposal, which the Norfolk Southern board unanimously determined was grossly inadequate, creates substantial regulatory risks and uncertainties that are highly unlikely to be overcome, and is not in the best interest of the Company and its shareholders.”
   CP’s new offer includes a lower cash component and larger stock offering in a new holding company that would be created to accommodate the merged railroad. The updated cash offer is $32.86 per share, compared to $46.72 per share in the original offer, while the stock component has been increased from 0.348 shares to 0.451 shares in the combined company.
   CP said in a statement that the revised offer would be “substantially more financially attractive by increasing NSC shareholders’ ownership of the (holding company) from 41 percent to 47 percent.” The revised offer, CP said, was crafted to alleviate NS concerns over whether the merger would be approved by U.S. regulators, namely the Surface Transportation Board.
   In knocking back the second proposal, NS pointed to a white paper written by former STB commissioners Francis Mulvey and Charles Nottingham that refuted the idea of a voting trust. The paper, released Monday, concluded that the STB “would not approve any voting trust structure because there is no basis to determine that it would be in the public interest.” 
   “Canadian Pacific’s revised, reduced proposal is not only less than what the Norfolk Southern board has already found to be grossly inadequate, it is even more uncertain and risky given the decrease in the cash consideration,” Norfolk Southern Chairman, President and Chief Executive Officer James A. Squires said of the second offer. “In addition to being grossly inadequate, the proposal is based on a voting trust structure that we reviewed and do not believe would be approved by the STB.”
   Squires said in November that not only was CP’s offer unwelcome and unlikely to pass regulatory scrutiny, it would also hurt NS’s customers.
   “We believe that Canadian Pacific’s short-term, cut-to-the-bone strategy could cause Norfolk Southern to lose substantial revenues from our service-sensitive customer base,” he said. “We also believe the proposed transaction risks harm to vital transportation infrastructure and the communities we serve. Any strategy that hurts our customers and the broader community is highly unlikely to receive regulatory approval and is inconsistent with the delivery of shareholder value over the long-term.”
   Analysts value the new offer at around $30 billion, up from the $28.4 billion from the first offer.