In what some industry observers believe may be a final attempt—short of a proxy battle—by hedge fund head Bill Ackman at a hostile takeover of Norfolk Southern, Canadian Pacific on Feb. 9, 2016, 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 regarding a business combination transaction.”
Norfolk Southern assisted 93 industries in locating or expanding their businesses along its rail lines in 2015, the railroad reported on Feb. 4, 2016.
Continuing its hostile pursuit of Norfolk Southern, and faced with some stiff political and rail industry opposition in the U.S., Canadian Pacific on Feb. 3, 2016 released a white paper, CP-NS: A Comprehensive Approach to Regulatory Approval “detailing the comprehensive, merit-based process any merger application would be subject to at the Surface Transportation Board,” CP said.
Norfolk Southern shareholders “continue to find themselves in the enviable position of having two Class I management teams competing to maximize shareholder value,” says Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl.
Though Norfolk Southern’s fourth-quarter and 2015 financial results aren’t all that different from those of most other Class I railroads, NS has been particularly compelled to develop an aggressive strategic plan because it is fending off a hostile takeover attempt.
News item: Canadian Pacific (CP) is pursuing a hostile takeover of Norfolk Southern (NS). CP is asking the U.S. Justice Department to investigate whether NS and other U.S.-based major railroads—some of which oppose the takeover—are unlawfully conspiring for “the primary purpose of restraining trade.” CP says “fear of competition does not justify the collective action of competitors.” Yet the Supreme Court long ago ruled that “joint efforts to influence public officials, such as railroad regulators, do not violate the antitrust laws even though intended to eliminate competition.”
Norfolk Southern’s Jan. 12, 2015 announcement about consolidating its Pocahontas and Virginia divisions “is notable,” and CSX is facing “continued industrial challenges,” according to Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl.
In remarks at the Midwest Association of Rail Shippers annual meeting on Jan. 13, 2015, Lance M. Fritz, President and CEO of Union Pacific, while declining to comment specifically on the proposed CP/Norfolk Southern merger, said, “I believe a Class I rail merger is not in the best interests of the rail industry and not in the best interests of our customers.” Canadian Pacific did not appreciate Fritz’s comments, and fired a shot across UP’s bow.
Most likely to assist in heading off Canadian Pacific’s next move toward an acquisition, Norfolk Southern announced on Jan. 12, 2016 that it is consolidating two of its divisions and shutting down portions of one secondary line as “part of the company’s ongoing drive to enhance operating efficiencies and support long-term growth.”
Reuters, which originally broke the story late last year about Canadian Pacific’s targeting of Norfolk Southern for acquisition before CP officially announced it, has published excerpts of several letters to the Surface Transportation Board from industry groups representing several major NS freight customers. The letters ask the STB to reject a merger application.
