The CP and NS Merger Battle Heats Up after CP's Third Bid Is Rejected

Dec. 31, 2015
Norfolk Southern's board of directors unanimously rejected a third purchase offer made by Canadian Pacific amid a rancorous war of words.

The war of words between the top management of Canadian Pacific and Norfolk Southern intensified before the holidays just after the NS board of directors unanimously rejected a third purchase offer made by CP. The verbal jousting included a CP press release attacking NS and other U.S. railroads for giving their employees Christmas off.

“Our economy runs year round and shippers must be able to get their goods to market in a timely fashion, regardless of the date or the amount of snow on the ground,” says Keith Creel, CP president and chief operating officer.

The NS board had rejected two earlier bids of about $28 billion in cash and CP stock. CP then returned with a third offer that did not increase the cash component substantially but offered NS shareholders a bet on the combined railroads’ future. CP said it would pay NS investors up to $11.30 more per share if it turned out that the merged company shares were worth less than $175 each in October 2017.

NS stock rose to about $87 a share on Dec. 23, immediately following the NS board’s rejection of the third CP bid, and then dropped to just below $86 a share on Dec. 29. The rail company’s stock began the year around $110 a share and its 2015 low was about $72 at the end of August, before CP made its run at the company.

“It is apparent that neither the executive leadership at NS nor its board of directors are willing to sit down in an open and constructive dialogue about this transformational opportunity and that the interests of the NS board are not aligned with the best interests of NS shareholders,” CP declared in response to the NS board’s rejection of its third offer. “Therefore, CP will review its strategic alternatives,” the company added, without saying what those could be.

CP’s leading shareholder Bill Ackman claims NS management has failed to cut costs and make other operational changes needed to improve the railroad’s profitability. He said the same thing about CP when engineering its takeover, after which he slashed CP’s workforce by a third.

Ackman has said that if the NS merger ultimately fails, CP will possibly pursue acquiring other railroads, but didn’t delineate which ones.

David Sparkman is founding editor of ACWI Advance (, the newsletter of the American Chain of Warehouses Inc. He also heads David Sparkman Consulting, a Washington D.C. area public relations and communications firm.

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