CP Counters NS Points With its Own White Paper

Canadian Pacific disputed the assertion of Norfolk Southern that a merger of the two railroads would not find favor with the U.S. Surface Transportation Board.

CP issued its own white paper in an effort to counter a similar document that NS released last week.

“As such, their white paper is based largely on inaccurate assumptions, rumor, speculation, and conclusions that are unsupported by fact or law,” CP said. “We would not presume to predict the conclusion of the current STB. We are, however, confident that the STB will not prejudge the transaction, and that whatever voting trust structure and merger application is ultimately presented to the STB for regulatory approval will be considered fairly and impartially.”

The NS white paper was written by former STB commissioners Frank Mulvey and Chip Nottingham.

CP continues to argue that the merger’s voting trust structure is legal and would receive STB approval. Saying there is precedent for the trust, CP said it would put itself in trust for the 16 months that the STB would take to review the merger.

During that time, CP CEO E. Hunter Harrison would become the head of NS. Earlier reports indicated that Harrison offered NS Chairman, President and CEO James Squires the post of CEO of CP.

Harrison has proposed severing all of his ties with CP, including participating in the railroad’s retirement program, after he takes over as NS chief.

“Under Mr. Harrison’s management, we expect that NS’s operations will materially improve,” CP said in its white paper. “Rather than cause financial harm, we believe that the use of a trust for CP and the transfer of Mr. Harrison to become CEO of NS will vastly improve the operations and value of both railroads.”

The CP white paper said the potential downstream effects of a CP-NS merger would not be a basis for the STB rejecting the combination out of hand.

Nor does CP believe that a merger with NS would trigger a wave of mergers among other Class 1 North American railroads.

“A CP+NS merger does not create a dominant carrier that would necessitate a reflexive merger in response,” CP said. “Rather, CP+NS would be better able to compete with the other large carriers. In this way, the merger adds competitive balance to the industry, making the industry more competitive as a whole.”

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