NS Offers Opening on CP Merger Talks

As expected, Canadian Pacific has filed with the U.S. Securities and Exchange Commission a shareholder resolution to be voted upon at the annual meeting of Norfolk Southern on May 12 that directs the NS board of directors to conduct “good faith discussions” about a merger.

The Calgary-based CP intends to send letters to NS shareholders to outline the value of the proposed merger.

Canadian PacificNS told the SEC in a proxy that it believes the CP-sponsored resolution is unnecessary because the NS board would be willing to discuss a merger with CP if the Canadian carrier obtains a declaratory order from the Surface Transportation Board and is willing to increase its offer.

CP has made three offers to acquire NS stock, but the NS board has rejected all three proposals.

The NS proxy filing signaling a willingness to discuss a merger was greeted warmly by CP.

“CP has consistently stated that we are open to discussing all terms of a potential deal, including price, but we can’t negotiate with ourselves,” said CP Chief Executive Officer E. Hunter Harrison in a news release. “Given we have also asked the Surface Transportation Board for a declaratory order on the voting trust model we were pleased to hear that Norfolk Southern may now be willing to engage in direct face-to-face discussions.”

In its statement of opposition, the NS board wrote that:

  • It is open to all feasible alternatives to drive shareholder value.
  • It has confidence in NS’ strategic plan, which aims to boost revenue and cut costs to reduce the railroad’s operating ratio to 65 percent by 2020.
  • It has clearly communicated its concerns regarding CP’s acquisition proposals.
  • CP has not addressed the board’s concerns regarding the value of its three merger offers or the regulatory risks of a merger.

It is unclear if the STB will issue before the NS annual meeting a ruling on the CP voting trust even though CP asked for one by May 6.

STB spokesman Dennis Watson said he couldn’t say when the board might rule.

Watson said the STB could issue a decision based on initial evidence or might begin a proceeding to ask the parties to submit additional evidence.

The latter would likely move a ruling by the board to date after the NS annual meeting.

“We have not heard anything from the STB on timing, and we are proceeding with our shareholder resolution,” said CP spokesman Martin Cej.

Although voting trusts are commonly used to insulate companies from unlawful control during a merger review process, CP has proposed an arrangement that the STB has never ruled upon.

CP proposed putting itself and not the company it wishes to acquire, into a trust. Harrison and other CP executives would sever their positions with CP and, presumably, take over as managers of NS.

Earlier, the STB set a deadline of April 8 for interested parties to file statements and participate in the declaratory order process.

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