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In this May 22, 2014, photo, empty train cars, front, sit in a yard after having their loads of coal unloaded at Norfolk Southern's Lamberts Point coal terminal in Norfolk, Va. 

Patrick Semansky/The Associated Press

Norfolk Southern Corp. led gains among U.S. railroads after activist investor Bill Ackman said Canadian Pacific Railway Ltd. may pursue a rival to one-time target CSX Corp.

While Ackman didn't name Norfolk Southern in remarks yesterday at the Invest for Kids conference in Chicago, he described the possible takeover target in relation to CSX. Norfolk, Virginia-based Norfolk Southern and CSX go head-to-head in the U.S. east of the Mississippi River.

CSX "is not the only potential railroad we can merge with," said Ackman, a Canadian Pacific director and founder of hedge fund Pershing Square Capital Management LP. "I think the risk with CSX is we merge with" a competitor to the Jacksonville, Florida-based carrier.

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Canadian Pacific's overtures to CSX last month kindled speculation that the North American industry may be poised for a final round of consolidation. While Calgary-based Canadian Pacific said later that talks had ended, Chief Executive Officer Hunter Harrison talked up the value of mergers and renewed his call for more combinations.

"I think something happens," Ackman said yesterday. "Hunter believes that pro-competitive railroad mergers will be allowed to happen by regulators."

Stock Advances Norfolk Southern climbed 1.8 per cent to $112.69 (U.S.) Friday morning in New York after touching $114.40, the highest in intraday trading in data compiled by Bloomberg going back to 1980. CSX and Kansas City Southern also rallied today. Canadian Pacific rose 0.8 per cent to $236.87 (Canadian).

CSX and Norfolk Southern rank are the two dominant railroads in the eastern U.S. A Canadian Pacific combination with either one would create a transcontinental North American carrier.

Breanne Feigel, a spokeswoman for Canadian Pacific, declined to comment. Rick Harris, a spokesman for Norfolk Southern, said: "We don't comment on speculation and rumors."

Pershing Square is Canadian Pacific's second-largest investor, according to data compiled by Bloomberg. Ackman led the ouster of CEO Fred Green in 2012 and the hiring of Harrison, the retired chief of Canadian National Railway Co.

Last month, Ackman championed the idea that rail mergers would help unwind recent congestion on North American tracks, saying "a lot of that can be dealt with through some mergers that are actually pro-competitive."

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U.S. regulators have raised barriers to mergers in recent years after decades of consolidation since the industry's deregulation in 1980 thinned major U.S. railroads to just four: CSX and Norfolk Southern in the eastern U.S., and Union Pacific Corp. and Berkshire Hathaway Inc.'s BNSF Railway Co. operating chiefly west of the Mississippi.

The two main Canadian railroads also have tracks in the U.S., thanks to acquisitions.

With assistance from Joshua Fineman and Libby Sallaberry McGowan in New York and Frederic Tomesco in Montreal.

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