NORFOLK, VA: December 08, 2015. Norfolk Southern (NS) has rejected a second bid by Canadian Pacific (CP) to acquire the U.S. rail company, describing its US$91.62 offer as less than the first one and "grossly inadequate".
NS said it had also rejected the new proposal because of "substantial regulatory risks and uncertainties that are highly unlikely to be overcome, and is not in the best interest of the company and its shareholders".
NS chairman, president and CEO James Squires said CP was proposing a voting trust structure that would not be approved by the U.S. Surface Transportation Board (STB). And in a bid to forestall any further CP action NS asked former STB commissioners Francis Mulvey and Charles Nottingham to review and comment on the original November bid.
According to a subsequent 'white paper' authored by the two men: "Based on our collective experience with prior STB determinations under public interest standards, the STB likely would not approve the proposed CP+NS merger.
"There is every reason to expect substantial opposition to the merger from other railroads, shippers, labor interests, and community and environmental groups. Especially in this context, it is hard to see any public interest justifications for the CP+NS merger, and the STB could view CP's claims with a large grain of salt," they added.
Mulvey, who served on the STB from 2004 to 2013 and Nottingham, who was a board member from 2006 to 2011, further declared: "If the reports we have read are correct, CP seems to think it can use a voting trust to begin implementing its business plan for NS during the STB's merger review process and prior to formal STB approval of the merger. This would directly violate the express statutory bar against a premature exercise of common control. CP cannot assume control of NS, by any means, until the STB approves the merger – even if a voting trust is used. This conclusion applies regardless of the specific scheme CP might use. No matter how CP executives are put in charge of NS management before the merger is approved, the STB likely would not be fooled into thinking that CP and NS are operating independently."
Squires concluded: "Canadian Pacific's revised, reduced proposal is not only less than what the Norfolk Southern board has already found to be grossly inadequate, it is even more uncertain and risky given the decrease in the cash consideration."