Despite continued rejection by Norfolk Southern Corp. (NS), Canadian Pacific (CP) has made it clear that it isn't throwing in the towel on a merger deal.
The company recently notified NS of its intent to submit a resolution to NS shareholders to ask their board of directors to engage in good-faith discussions with CP. Additionally, CP recently released a white paper and launched a website dedicated specifically to promoting the merger.
CP said it believes a business combination transaction involving CP and NS would create a true end-to-end, transcontinental railroad that would enhance competition, benefit the public and drive economic growth.?
“NS shareholders have been telling CP from the beginning that their own board should, at the very least, talk to CP about a potential combination. CP's shareholder resolution to NS asks shareholders to formally vote in favor of what they have been saying to CP anecdotally for months,” the company stated.
CP added that while some NS shareholders have asked CP to nominate an alternative slate of directors for the NS board to help initiate a transaction, it believes the shareholder resolution is the “clearest, fairest approach to a process that will result in an outcome beneficial to all stakeholders.”
"We are not asking NS shareholders to vote on the existing proposal; we are simply asking them to vote in favor of having their board talk to us," said E. Hunter Harrison, CP chief executive officer. "We continue to believe in the potential to create a transcontinental railroad with NS and believe this is a fair and measured approach to getting a deal done."
The shareholder resolution will be voted on at the NS annual meeting later this year.
CP said its proposal, which includes a sizable premium in cash and stock offered to NS shareholders, would result in a company with the potential for faster earnings growth than either CP or NS could achieve on their own, all while delivering enhanced service to customers and maintaining a strong investment grade credit rating.
"Shareholders and analysts will be watching NS closely throughout 2016, and if they continue to underperform, the pressure to work with CP will only grow," Harrison said. "Our model performs in good times and bad, consistently driving shareholder value during the peaks and the valleys. Surely, that kind of performance is what shareholders would expect their board to deliver, and they can only deliver it by working with us."
CP strongly believes that a combined railroad would offer unparalleled customer service and competitive rates that will support the success of the shippers and industries it serves and satisfy the U.S. Surface Transportation Board and Canadian regulators. In direct discussions with NS, CP also would be able to work with NS on the optimal means to obtain regulatory approvals for the transaction.
CP releases white paper, launches website
CP recently released a white paper showing how its proposed combination with NS will alleviate congestion in the key rail hub of Chicago, Ill.
According to the white paper, A CP/NS combined network would have a meaningful, lasting impact on Chicago congestion — for the clear benefit of customers, competitors and the broader economy. CP said the combination would reduce congestion and create capacity in Chicago by:
* Providing options to shift traffic to alternative routings, which would also serve to relieve pressure across the network;
* Making operational improvements to a switching carrier and moving processing interchanges within Chicago to underutilized hubs outside the city, and
* Identifying a number of other opportunities for operational improvements in train and routing management.
“A combined CP/NS network will reduce congestion in Chicago and free up capacity for other railways,” CN noted. “By diverting handoffs between railways to underutilized hubs outside the city and reducing processing in yards within the city, there is a real opportunity to make a meaningful contribution to address the congestion in Chicago while significantly improving service for diverted traffic. The result is a stronger and more resilient rail network better able to avoid and recover from future service disruptions.”
On Feb. 11, CP also launched a new website highlighting the benefits of its pro-customer, end-to-end, competition-enhancing business combination proposal with NS.
“Together, CP and Norfolk Southern would make a transcontinental railroad with the scale and reach to deliver unsurpassed value to shareholders,” the website states. “We invite NS leadership to sit down with CP to discuss the offer and consider the full range of options — together. Given the significant benefits this combination can deliver to all our stakeholders, CP's proposal is worth taking seriously.”