Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl reports on a recent dinner conversation with “a large private shipper” that focused on the proposed Canadian Pacific-Norfolk Southern merger, rail pricing, railcar sourcing, and the U.S. economy. Following are his observations:
As Canadian Pacific continues to pursue a merger with Norfolk Southern, CP CEO Hunter Harrison sent a response to the members of the Illinois Congressional delegation (all Democrats) who sent a letter to the Surface Transportation Board on De. 14, 2015 expressing concerns about the potential transaction.
According to Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl, “The addition of a contingent value right (CVR) is Canadian Pacific’s way of providing Norfolk Southern shareholders with an insurance backstop, another effort by the Canadian Class I to put its money where its mouth is.”
Rail industry cogitation focuses so far on Canadian Pacific’s (CP) prospects for securing Surface Transportation Board (STB) approval for its—at first friendly and now increasingly hostile—attempt to take over Norfolk Southern (NS). Unremarked has been the even-less predictable, but equally essential, attitude of Canada’s transportation and business regulators to a deal that would see one of the country’s two Class I’s disappear into the alphabet soup of American megamergers.
The rail industry and its many observers have been absorbed by the Canadian Pacific Railway’s pursuit of Norfolk Southern. Without recounting the entire story, the whole scenario (minus the regulatory stew that would be an integral part of any Class I merger) is a classic “boy meets girl” scenario with a twist.
Canadian Pacific (CP) on Dec. 16, 2015 announced a “revised, enhanced offer” in its bid to acquire Norfolk Southern (NS). The revised offer consists of, for each NS share, U.S.$32.86, 0.451 shares of stock in the combined CP-NS, and 0.451 of a contingent value right (CVR) worth a maximum $25. In response, NS said its board of directors “will carefully consider the publicly disclosed, revised proposal from CP with the assistance of its financial, legal and regulatory advisors.”
December 7, 2015: A day that will live in infamy for anyone attempting to follow the volley of legalese and rhetoric being tossed about by Canadian Pacific and Norfolk Southern as CP attempts to marry up with NS in what may be beginning to look more and more like a shotgun wedding officiated by The Rev. Bill Ackman.*
In response to the proposed merger between Canadian Pacific Railway (CP) and Norfolk Southern Corporation (NS), U.S. Senator Dick Durbin (D-Ill.) on Dec. 14, 2015 sent a letter signed by Democratic members of the Illinois Congressional Delegation to the Surface Transportation Board (STB) urging the agency to carefully consider the potential negative impact of the proposal on Illinois’ freight network. In the letter, the legislators requested careful review of the possible effects of CP’s proposed acquisition of NS on Illinois communities and businesses, particularly those in and around Chicago.
In a Dec. 10, 2015 interview with Bloomberg TV Canada, BNSF Executive Chairman Matt Rose stated that his company has spoken to both eastern Class I railroads about potential merger activity. “We have long believed BNSF would be involved in the industry potentially consolidating from seven carriers to four,” says Cowen & Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “We continue to believe Norfolk Southern shares will outperform and that investors will start to look at eastern rival CSX.”
“Take Canadian Pacific (CP) CEO Hunter Harrison out of the equation and CP’s offer to Norfolk Southern (NS) and its shareholders would have little chance of getting anywhere, in our opinion,” said Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl.