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Hunter Harrison, CEO of Canadian Pacific Railway Limited addresses shareholders at the company's annual general meeting in Calgary, Alberta, May 1, 2014.MIKE STURK/Reuters

Canadian Pacific Railway Ltd. says it has no plans to move its headquarters out of Canada as it tries to build a transcontinental railroad with the $29-billion (U.S.) takeover of Virginia-based Norfolk Southern Corp.

"There have been several rumours in the media about headquarter relocation. Any talk of relocation is entirely premature and speculative in nature. That said, Canadian Pacific has no plans to move its headquarters outside of Canada," Hunter Harrison, CP's chief executive officer, told CP employees in a memo on Friday.

Mr. Harrison fuelled reports the Calgary headquarters could be moved south in a talk with investors on Thursday. He said most of the details of the deal have yet to worked out, including board composition and head office location.

Mr. Harrison said the office location was among the issues that would be up for debate in response to an analyst who asked if a nine-to-12-times-earnings-multiple CP is the range of what CP is willing to pay, and what other factors CP is considering.

Mr. Harrison responded: "No, I think that's a reasonable conclusion, given what the other issues might be … So it's like, it's a, 'Who's going to get what board seat?' and 'How many here or there?' or 'Where is headquarters going to be?' or 'What are we going to do here?' or 'Who is guaranteed a job?' or those things all start to become a consideration."

Mr. Harrison said last week he hopes Norfolk Southern agrees to meet with him to talk about the deal, and appealed to Norfolk Southern shareholders with talk of slashing costs at a company that has seen its growth stagnate.

One scenario being considered is a holding company headed by Mr. Harrison, while Norfolk Southern CEO James Squires would run CP from Calgary. Norfolk Southern would be run by CP chief operating officer Keith Creel, Mr. Harrison's right-hand man.

"As you have heard, CP has made an offer to Norfolk Southern Corp. (NSC) that we believe will be in the best long-term interest for CP," Mr. Harrison's memo to employees reads. "The business combination we are proposing allows both franchises to enhance their potential in terms of market reach, it allows shippers and customers the opportunity for faster transit times and premium service, and we think will maximize value for shareholders."

Share prices in all six major North American railways fell on Monday as more analysts said a merger between CP and Norfolk Southern is unlikely to be approved by the U.S. Surface Transportation Board.

CP's share price in Toronto fell by $2.73 (Canadian) to $196 at one point, closing at $196.66.

Norfolk Southern shares fell by $2 (U.S.) to $95.56, which is less than the $97.79 current value of CP's offer.

Norfolk Southern has said it will evaluate the offer, and did not respond to an interview request.

Last week, the company described the offer as "unsolicited, low-premium, non-binding, highly conditional."

Since taking the top job at CP in 2012 after a proxy fight led by investor Bill Ackman, Mr. Harrison has slashed costs and sidelined locomotives in a push to improve the railway's efficiency.

In 2013, the company spent $40-million (Canadian) building and moving its headquarters to the main Calgary rail yard from downtown. The move saves CP $20-million a year in leasing costs.


CP's Harrison sees 'huge cash flow'

Canadian Pacific Railway Ltd. expects to generate substantial proceeds by selling surplus land owned by Norfolk Southern Corp. if its proposed $28-billion (U.S.) takeover of the U.S. railroad goes ahead.

"I think we'll be able, like we did at CP, to take some of their yards that are probably not needed in my view, and convert them to maybe real estate and generate huge cash flow – huge – without having a negative impact on the railroad," Canadian Pacific CEO Hunter Harrison said in an interview. "It's gravy. It could be a lot. That's why I'm excited."

Any proceeds from divesting real estate would come on top of an estimated $1.8-billion in operational savings contained in CP's merger proposal, said Harrison, who declined to give a specific revenue target.

Norfolk Southern operates about 32,000 kilometres of track snaking through 22 eastern states, and serves each of the region's major container ports.

Bloomberg News

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