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CP Rail bid for Norfolk Southern

CALGARY, Alberta: November 18, 2015. Canadian Pacific Rail (CP) has made a US$28 billion offer to acquire U.S. railway operator Norfolk Southern (NS). The combined unit would be the largest rail company in North America.

Norfolk SouthernNS confirmed it had received "an unsolicited, low-premium, non-binding, highly conditional indication of interest" from CP and said it would carefully consider the offer – adding that such a deal would face "significant regulatory hurdles" from the U.S. Surface Transportation Board.

In addition to annual savings of US$1.8 billion over several years, CP said the proposal would allow both companies to reduce costs by avoiding Chicago that can take a day to transit and result in "bottleneck pricing" for shippers.

In a letter to NS CEO James Squires, CP CEO Hunter Harrison said the proposal would create a transcontinental rail network connecting the major industrial production and population centers across North America; provide global reach through premier ports across the U.S. Gulf, Atlantic and Pacific North American coasts; integrate operations at four major rail gateways and enhance services to shippers.

Harrison added that a combined network would create more comprehensive end-to-end shipment solutions for their customers and reduce congestion in Chicago: "A combined network will also lead to faster growth for the new entity versus what either of us would be able to achieve on our own and, importantly, would create a larger, more diversified book of business less dependent on volatile commodities such as crude oil or thermal coal."

CP has secured US$14.2 billion in financing from J.P. Morgan Securities for the proposed deal.

In a unrelated move Hapag-Lloyd says it will switch "the vast majority" of its East Coast intermodal rail flows from CSX to Norfolk Southern from January 01, 2016.

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