Canadian Pacific Railway (CP) said today it is weighing all legal options against U.S. railroads that are "working collectively" to block CP's proposed $27 billion acquisition of Norfolk Southern Corp. (NS), threatening to escalate a battle that began six weeks ago when CP asked the U.S. Department of Justice to probe what it called a "concerted effort" by several U.S. rail CEOs to block the deal.
In today's statement, Calgary-based CP said it was "unfortunate" that it must consider resorting to litigation to protect its rights. It added, though, that "the actions of those competitors should not be allowed to block the creation of a railroad that offers unparalleled customer service and competitive rates that will support the success of the shippers, the industries it serves, and the broader economy." CP spokesman Martin Cej declined further comment.
Western U.S. railroads BNSF Railway Co. and Union Pacific Corp. (UP) have made no secret of their opposition to the CP-NS deal, saying it would trigger a last round of consolidation that would be damaging and disruptive to rail customers and the economy. Lance Fritz, chairman, president, and CEO of Omaha-based UP, has said he would do everything in his power to block it. Matthew K. Rose, executive chairman of Fort Worth-based BNSF, said a CP-NS combination, if approved by U.S. regulators, would likely compel BNSF to make a bid for Jacksonville-based CSX Corp., Norfolk, Va.-based NS' rival in the East. Both executives said they and their customers are opposed to further large rail mergers.
On Jan. 19, CP sent a letter to Justice Department officials saying that executives of large U.S. railroads had begun a "widespread campaign of meeting and solicitations" with customers, the media, and other interested parties in an effort to block the proposed deal, which must be approved by U.S. and Canadian regulators. The letter did not identify any of the railroads or their executives.
At the time, Cej, the CP spokesman, said "certain railroads do not have confidence that the regulatory process for clearing mergers will result in a conclusion that is consistent with their goal of maintaining the status quo. As a result, they've said publicly that they have held meetings and devised plans to take whatever steps are necessary to prevent any merger from occurring."
CP has made three buyout offers for NS, each of which NS' board has rejected. CP will present a shareholder resolution at NS' annual meeting to request that its board discuss a combination with CP. E. Hunter Harrison, CP's CEO, has said the railroad will abandon its buyout plan if the resolution isn't adopted. NS' board has said it sees no further need to meet with CP to discuss its latest offer, which was made in December.
The U.S. Surface Transportation Board (STB), the agency that oversees rail mergers, would have to approve any acquisition. CP has proposed to place itself in a voting trust to insulate itself from financial control of NS during the 18- to 22-month period the STB would have to evaluate the combined entity. Harrison would leave CP to run NS. Keith Creel, Harrison's second-in-command, would run CP.
CP has argued that NS is not particularly well run, but that it could perform much better under the right management. Even if the STB ultimately rejects the deal and the railroads part ways, NS shareholders will be left with a dramatically improved railroad than what would have existed otherwise, CP has said.
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