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December 6, 2015

Norfolk Southern rejects Canadian Pacific’s $29bn takeover bid

US rail company Norfolk Southern (NS) has rejected a takeover offer of more than $29bn from Canadian Pacific (CP), saying the valuation is grossly inadequate and not in the best interests of the company and its shareholders.

Canadian Pacific

US rail company Norfolk Southern (NS) has rejected a takeover offer of more than $29bn from Canadian Pacific (CP), saying the valuation is grossly inadequate and not in the best interests of the company and its shareholders.

The NS board has unanimously rejected the ‘low-premium, non-binding and highly conditional’ offer as the transaction would face substantial regulatory risks and ‘uncertainties highly unlikely to be overcome’.

In November, CP offered Norfolk shareholders $46.72 in cash and 0.348 CP share for every share they own.

If accepted, the bid would have created the largest rail company in North America.

At the time of proposal, CP said that the business combination would lead to a transcontinental railroad that will deliver improved levels of service to customers and communities, as well as improve competition and create significant shareholder value.

Norfolk Southern chairman, president and CEO James Squires said: "We believe in our ability to generate greater shareholder value through execution of our strategy. Delivering efficient and superior service to build a more profitable franchise based on price and volume growth, implementing efficiency measures, and increasing returns on capital to strengthen our financial performance, all while maintaining our disciplined capital return strategy.

"We believe in our ability to generate greater shareholder value through execution of our strategy."

"Norfolk Southern has made growth investments and we expect to realise the benefits of these investments in the years ahead, especially as our intermodal volumes continue to build.

"Specifically, we expect to achieve an operating ratio below 70 in 2016 with additional improvements over the next five years resulting in increasing ROE and an operating ratio below 65 by 2020.

"By maximising our asset utilisation, we believe we can achieve double-digit compounded EPS growth over this period. In short, Norfolk Southern is well-positioned to deliver compelling value to our shareholders.

"There is a high probability that, after years of disruption and expense, the proposed combination would be rejected by the Surface Transportation Board (STB)."

The company noted that the proposed transaction risks harm to vital transportation infrastructure and the communities it serves.

"Any strategy that hurts our customers and the broader community is highly unlikely to receive regulatory approval and is inconsistent with the delivery of shareholder value over the long-term," Squires added.

NS expects to achieve an operating ratio of less than 70 in 2016 with additional improvements over the next five years forecasting a further reduction to 65 by 2020.

The company operates 20,000 route miles in 22 states, mostly in eastern US, while CP transports to eight major ports in the US and Canada, including Vancouver and Montreal.


Image: The bid would have created the largest rail company in North America if accepted. Photo: courtesy of Canadian Pacific.

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