CP still waiting on response from Norfolk Southern on takeover offer

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Canadian Pacific Railway Ltd. is still waiting for Norfolk Southern Corp. to respond to a $29-billion (U.S.) takeover offer made more than a week ago.

"Norfolk Southern has not reached out to CP beyond its earlier response," said Martin Cej, a CP spokesman.

Hunter Harrison, CP's chief executive officer, and James Squires, CEO of Norfolk Southern, met on Nov. 13 to talk about CP's plan to form a transcontinental railway.

The meeting was followed by an offer letter from CP on Nov. 17, proposing a 50-50 stock-and-cash deal worth $97.66 a share, based on today's prices.

Norfolk Southern issued a press release on Nov. 17 acknowledging receipt of the letter, but described it as low and highly conditional. Since then, the company has said nothing.

"CP remains open to any engagement," Mr. Cej said. "The ball's in their court. We sent them an offer letter. We'll wait for their response."

Norfolk Southern shares traded at about $94.85 on Tuesday on the New York Stock Exchange, less than the offer value. The company turned down an interview request on Tuesday.

In the meantime, shares of all major railways have edged lower in the past few days as investors seem to be realizing a deal is not imminent.

The combination of Calgary-based CP and Virginia-based Norfolk Southern would form a company with 55,000 kilometres of tracks and access to such key ports as New York, New Orleans and Vancouver.

CP says the merged companies would be able to improve rail service and relieve congestion for all carriers by skirting the Chicago choke point. To further allay concerns of the U.S. regulator and customers, CP says it would offer shippers greater access to rival rail companies.

CP says it sees $1.8-billion (U.S.) in cost savings by idling up to 40 per cent of Norfolk Southern's locomotives and selling unneeded rail yards, among other cuts.

Since the offer became public, Mr. Harrison has been pitching the idea to U.S. investors and analysts. He said last week that he hoped to hear from Mr. Squires, and indicated he was flexible on everything from the deal's structure to its value.

"I asked them for a price and they hadn't given it to me at that meeting. I asked them about if there were social issues and they said, no, it was all about shareholder value," Mr. Harrison said.

"Now clearly, since that time, they've come out and said that this was a low premium and unsolicited and whatever their press release said. But, once again, it's hard to set a price if you don't know the conditions. … Is that our final offer? Line in the sand? No, and I tried to indicate that to them."

Last fall, CP abandoned takeover talks with Norfolk Southern's rival, CSX Corp., after it became clear the Florida-based target was not interested. Since then, executives at all the other major railways – including Norfolk Southern – have said the U.S. Surface Transportation Board is unlikely to approve any merger amid complaints of rising freight rates, congestion and declining service.

Approval of one takeover is expected to trigger others, analysts say.