If the U.S. Surface Transportation Board approves the merger between Norfolk Southern and Canadian Pacific Railway, it could trigger others in an industry dominated by seven large railways.Jeff McIntosh/The Canadian Press
Canadian Pacific Railway Ltd. chief Hunter Harrison says Norfolk Southern Corp. has told him it will soon issue a reply to CP's $29-billion (U.S.) takeover offer made almost three weeks ago.
"Our friends at [Norfolk Southern] have indicated we'll be hearing a response from them, I think, soon," Mr. Harrison said on Wednesday at an analyst and investor presentation in Florida.
The merger, which would form the largest railway in North America with 55,000 kilometres of track and access to ports in Vancouver, New York City and the Gulf of Mexico, is expected to face a tough, two-year fight for approval by the U.S. Surface Transportation Board (STB).
Customer complaints about congestion, poor service and increasing freight rates are believed to be hurdles to any merger.
Mr. Harrison said he has had positive feedback on the deal from Virginia-based Norfolk Southern shareholders and shippers, but other railways have repeated their opposition to the proposal.
He did not elaborate on their complaints but said they should not be afraid of the combined railways competing unfairly. "If I were them, I wouldn't be," he said. "I just can't imagine [BNSF Railway owner Warren] Buffett going to Washington and saying, 'Help us with these Canadians coming in here and doing all these ugly things.'"
If the STB grants its blessing, it could trigger other mergers in an industry dominated by seven large railways. Executives at other railways have said a review by the STB could result in costly concessions for the entire industry.
A Norfolk Southern spokesman declined to confirm that the company has told CP that a response is imminent.
Norfolk Southern has yet to publicly state an opinion on the offer, other than to describe it as "highly conditional" with a "low" premium on the company's market value.
"Our board of directors in consultation with financial and legal advisers is carefully evaluating and considering this," Alan Shaw, Norfolk Southern's executive vice-president and chief marketing officer, said at the same conference on Wednesday. "The board and management team are committed to continuing to act in the best interest of NS and its stakeholders, including our customers."
Mr. Harrison took charge at CP in 2012 after a proxy fight led by activist investor Bill Ackman. Since then, Mr. Harrison has idled locomotives, cut 30 per cent of the staff and retooled operations to turn CP from an industry laggard into one of the most efficient in North America.
Mr. Harrison said he would perform a similar feat at Norfolk Southern, which has an operating ratio that trails its peers.
CP says combining the two companies will bring $1.8-billion in cost savings over several years by combining terminals, parking locomotives and rail cars, and reducing the work force through attrition.
For CP, the deal would give it access to the densely populated eastern United States, the East Coast ports and the refineries of the northeast. It would help CP diversify its focus away from grain and bulk commodities with greater exposure to intermodal and automotive lines.
"Obviously, our book of business is a little stale," Mr. Harrison said.
But in addition to adding to CP's long-term debt of $8.6-billion (Canadian), the takeover would also give CP control of a company at which 50 per cent of revenue is tied to commodity prices.
Norfolk Southern has seen revenue fall 9 per cent this year and profit decrease 19 per cent in the third quarter as demand for coal at steel plants and utilities plunged.
Eric Atkins