Reuters — Canadian Pacific Railway said on Monday it had scrapped efforts to buy Norfolk Southern, almost six months after it launched its unsolicited US$28 billion bid for the fourth-largest U.S. railroad operator.
The announcement comes days after the U.S. Justice Department urged the Surface Transportation Board to reject a voting trust arrangement CP had proposed as part of its bid.
Calgary-based CP, Canada’s second-largest railroad operator, launched its takeover bid for Norfolk Southern in mid-November, touting potential savings of more than $1.8 billion annually (all figures US$).
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But Virginia-based Norfolk Southern had continually rebuffed its advances, rejecting CP’s offer three times including its latest offer in December.
In that offer, CP had proposed a contingent value right in a new holding company for CP and Norfolk that could have increased the value of the deal by up to $3.4 billion.
CP said Monday it has also withdrawn its resolution calling on Norfolk shareholders to vote in favour of good-faith negotiations between the two companies, and plans “no further financial offers or overtures to meet” with Norfolk’s board.
Norfolk’s shares were down about 0.8 per cent at $80.82 in premarket trading. CP’s U.S.-listed shares were untraded before the opening bell.
“We have long recognized that consolidation is necessary for the North American rail industry to meet the demands of a growing economy, but with no clear path to a friendly merger at this time, we will turn all of our focus and energy to serving our customers and creating long-term value for CP shareholders,” CP CEO Hunter Harrison said in a statement.
A number of Democratic lawmakers in Congress, including all the party’s representatives from Illinois and Pennsylvania, have spoken out against a merger.
The U.S. military also raised concerns last week, saying a merger could adversely affect the country’s national defense. The military relies on rail networks to move defense-related cargo across the country, both during peace and times of war.
Some customers including package delivery companies FedEx and UPS had also opposed CP’s plans out of fears that cost cutting would hurt rail services. UPS is the largest customer of the major U.S. railroads.
Billionaire investor William Ackman had played an outsized role in CP’s plan to buy rival Norfolk, but later acknowledged that his firm, Pershing Square Capital Management, should have cut its stake in CP.
CP had also discussed a deal with railway CSX Corp. last year but could not reach an agreement.
Norfolk’s shares have fallen more than six per cent since CP’s first offer in November.
— Reporting for Reuters by Arathy S. Nair in Bangalore. Includes files from AGCanada.com Network staff.
