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Canadian Pacific Enhances Offer to Purchase Norfolk Southern
The Canadian carrier, which is pressing its plan despite Norfolk Southern鈥檚 opposition, added an option called a contingent value right worth at least $3.4 billion, with the price tied to future price of Canadian Pacific stock. The previous offer, based on the current value of the companies鈥 shares, was about $28 billion, including $32.86 in cash and 0.451 shares of Canadian Pacific that would be exchanged for each Norfolk Southern share.
Norfolk Southern in response said its directors 鈥渨ill carefully consider鈥 the revised proposal, while also noting that the latest CP plan 鈥渄id not address the substantial regulatory risks and uncertainties inherent in the proposed combination.鈥
Norfolk contends its own plan to improve its operating ratio by five percentage points to 65 within four years is a better option for shareholders, given its expectations CP鈥檚 approach won鈥檛 be approved by the STB.
CP Board member William Ackman, who led a successful proxy fight to oust CP鈥檚 former management, said CP by Feb. 14 could either seek NS shareholder approval of a resolution directing NS to negotiate about a deal, or CP could put up a slate of new directors to run NS after the U.S. company鈥檚 annual meeting in May.
Combining the two companies would result in a $17.6 billion carrier with 44,000 workers.
鈥淚f this is going to be a street fight, so be it,鈥 said Canadian Pacific CEO Hunter Harrison, who would move to head Norfolk as early as May under the Canadians鈥 proposal. After cost-cutting since his arrival in 2012, Harrison鈥檚 railroad in the third quarter had an operating ratio of 59.8. That was a 22.7-percentage-point improvement over three years.
鈥淭he clock is ticking and it is ticking down,鈥 he said. 鈥淚t is time for action.
鈥淚 have not given up on the ability to sit down with the NS folks,鈥 he added.
Harrison, who spoke on a conference call, wouldn鈥檛 move to Norfolk unless and until the STB approves a voting trust for CP while the agency mulls whether to approve the actual merger. Norfolk Southern, citing comments from former STB Commissioners, insists that a voting trust won鈥檛 be approved. On Dec. 16, CP maintained that 144 voting trusts have been approved by the STB over two decades, while none have been rejected by the agency.
Norfolk also said CP should ask STB to rule in advance on whether the potential buyer鈥檚 voting trust structure would be approved by the agency. CP has said it has no plans to take that approach.
Ackman attacked NS, saying the company鈥檚 management has misled the public about the viability of a voting trust and the transaction in general.听听
