Canadian Pacific (CP) Ends Bid to Buy Norfolk Southern (NSC)

Canadian Pacific

Canadian Pacific Railway Limited (NYSE:CP) (TSE:CP) terminated its efforts to acquire Norfolk Southern Corp. (NYSE:NSC) after five months.

Market observers suggested that its decision is a setback to Bill Ackman, who advocated the transaction. His firm, Pershing Square Capital Management is the second largest shareholder, holding 9.1% of Canadian Pacific.

Norfolk Southern is the second-largest railroad in the eastern United States. The company rejected Canadian Pacific’s proposal as “grossly inadequate” and stated that the regulators would not approve the deal, valued at around $27 billion.

Canadian Pacific doesn’t see a clear path to a friendly merger

According to Canadian Pacific, it has no plans for further financial offers or overtures to meet with the Board of Directors of Norfolk Southern at this time.

“We have long recognized that consolidation is necessary for the North American rail industry to meet the demands of a growing economy, but with no clear path to a friendly merger at this time, we will turn all of our focus and energy to serving our customers and creating long term value for CP shareholders,” said E. Hunter Harrison, CEO of Canadian Pacific.

The company said it will continue to focus in providing the best service, controlling costs, optimizing assets, operating safely and developing the best team of railroaders in the industry. Canadian Pacific added that its proven approach–precision railroading delivers superior results.

Walter Spracklin, an analyst at RBC Capital Markets, believe that Canadian Pacific’ decision to drop its proposal is positive for the company. According to him, “A management team of this caliber that is now able to redirect all of its focus and energy into railroading certainly bodes well from a fundamental standpoint — and we see upside to consensus estimates as a result.”

​​​The stock price of Canadian Pacific climbed 3.86% to $139.99 per share at the time of this writing around 2:22 in the afternoon in New York.

Norfolk Southern comment

Norfolk Southern issued a statement that its Board and management are committed to enhancing value for shareholders in response to Canadian Pacific’s withdrawal of its unsolicited acquisition proposal and related shareholder resolution.

The company added that it has been focused on executing a strategic plan to simplify operations, reduce expenses and maintain superior customer service levels.

Norfolk Southern noted that it is making significant progress and it is on track to achieve annual productivity savings of more than $650 million and an operating ratio below 65% by 2024.

The stock price of Norfolk Southern was down more than 2% to $79.74 per share.