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.

NS 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.