Canadian Pacific Approached CSX About a Takeover CSX rebuffs offer; Canadian Pacific still committed to separate Norfolk Southern Bid
Canadian Pacific Railway Ltd., which is pressing an unwanted takeover bid for Norfolk Southern Corp., recently revived a $20 billion-plus effort to combine with CSX Corp. in the latest sign of its eagerness to bring consolidation to the industry.
Canadian Pacific made a fresh approach to CSX in January, according to people familiar with the matter and Canadian Pacific Chief Executive Hunter Harrison. Though the approach was rebuffed, Canadian Pacific remains interested, they said.
The western-focused railroad sees value in combining with Norfolk Southern or CSX, given the stronghold each has in the eastern U.S. Although Canadian Pacific remains committed to its about $30 billion bid to acquire Norfolk Southern, the Canadian company is determined to build a transnational railway and wants to keep its options open, Mr. Harrison said when reached for comment Tuesday.
“We’ve said all along that if we looked at the synergies between the two eastern carriers, right now both of them would work for us,” he said.
It isn’t clear why CSX said no. Shares of the Jacksonville, Fla.-based company, which is working with advisers, rose 2% to $24.64 while Canadian Pacific gained 1.5%, to $122.96, both in 4 p.m. trading on Tuesday. CSX rose 5% in late trading after The Wall Street Journal’s report of the approach.
In 2014, Canadian Pacific made its first bid to buy CSX and was rebuffed then, too.
• CP Has Other Plans if Norfolk Deal Falls Through (Feb. 17)
• CP Abandons Threat of Norfolk Proxy Fight (Feb. 9)
• Norfolk Rejects Revised CP Bid (Dec. 14)
• CP Outlines Norfolk Bid (Nov. 17)
• CP Pitches Norfolk Tie-Up (Nov. 13)
Since then Mr. Harrison has been the industry’s most vocal advocate of mergers. Unlike Canada, which has two transnational railways, the U.S. doesn’t have a cross-country carrier. By connecting Canadian Pacific’s rail network with a carrier such as CSX or Norfolk Southern, Mr. Harrison has argued that time-consuming bottlenecks in busy hubs such as Chicago could be eliminated.
Canadian Pacific shifted its sights to Norfolk Southern last November. Norfolk Southern rejected the offer and has launched a strategic plan to improve its operating performance, which ranks among the worst for major U.S. railways.
CSX and other rail operators have been beset by factors including a decline in commodity prices and coal traffic, but there are formidable hurdles to any consolidation that could ease those pressures. For one, it is unclear whether regulators, including the powerful U.S. Surface Transportation Board, would bless any such marriages.
Norfolk Southern has been resisting Canadian Pacific’s roughly $30 billion cash-and stock bid to buy the company, citing regulatory concerns and an offer it says is too low. Both Norfolk Southern and CSX have larger market values that Canadian Pacific, which currently is worth about $19 billion.
Norfolk Southern on Tuesday said separately that it would consolidate some business units—the railroad operator’s latest move to rejigger itself as it fends off Canadian Pacific. The Norfolk, Va., company will divide itself into northern and southern segments, consolidating from three operating regions effective March 15, and make changes to train-dispatch technology. The steps are part of a previously outlined five-year plan to shave $650 million off annual expenses.
In January, Norfolk Southern said it would eliminate 1,200 jobs in 2016, idle tracks, close and combine operations and pare capital spending. The plan is designed to reassure investors as Norfolk Southern stock remains under pressure from the effect of collapsing energy prices on rail cargo demand and as it fights off Canadian Pacific.
Over the past three months, Norfolk Southern stock has dropped by 21%.
Days after Norfolk Southern unveiled its five-year strategy, Canadian Pacific abandoned its threat of a proxy fight to unseat Norfolk Southern directors. But Canadian Pacific has still sought to woo Norfolk Southern shareholders.
CSX was founded in 1827 and has nearly 32,000 employees. The Jacksonville, Fla., company serves nearly two-thirds of the American population through a network that reaches 23 states and two Canadian provinces, according to its website. The company’s rail network links to five oil terminals and six refineries along the eastern seaboard.
Canadian Pacific, based in Calgary, Alberta, was founded in 1881. Its railways in Canada and the U.S. have direct links to eight major ports, according to the company’s website. William Ackman’s Pershing Square Capital Management LP has an about 9% stake in Canadian Pacific and board representation. The activist investor has been a proponent of a Canadian Pacific-Norfolk Southern tie-up. Last month, CSX said it expects first-quarter earnings will decline significantly because of lower volume, the impact of the strong U.S. dollar and low global commodity prices.
By DANA MATTIOLI, JACQUIE MCNISH and DANA CIMILLUCA
Canadian Pacific Approached CSX About a Takeover – WSJ