Canadian Pacific Approached CSX About Deal While Pursuing NS
Omaha, Neb. (AP) — Canadian Pacific reportedly approached the CSX railroad about a possible merger earlier this year while it continued to pursue its proposed takeover of rival Norfolk Southern.
The latest overture to Jacksonville, Florida-based CSX was first reported by The Wall Street Journal. Canadian Pacific first contacted CSX in the fall of 2014 about a potential deal and was rejected.
Canadian Pacific CEO Hunter Harrison said his railroad remains committed to its roughly $30 billion bid for Norfolk Southern, which is based in Norfolk, Virginia.
“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,” Harrison said to the Wall Street Journal. Canadian Pacific spokesman Martin Cej said that quote is accurate.
Officials with CSX and Norfolk Southern railroads both declined to comment.
The reported contact with CSX reinforces how interested Canadian Pacific officials are in joining with one of the eastern railroads, but it doesn’t necessarily make a deal likely to succeed, said Citi analyst Christian Wetherbee.
A deal faces significant regulatory hurdles because no major railroad mergers have been approved since the federal Surface Transportation Board adopted tough rules for them in 2001.
Canadian Pacific first approached Norfolk Southern last fall about the possibility of combining the two railroads. The offer has been revised and rejected several times.
Norfolk Southern has said it believes Canadian Pacific’s offer is grossly inadequate, and it questions whether federal regulators would approve such a merger or impose costly conditions on the deal.
Canadian Pacific officials have said they plan to ask the board to review the proposed structure of the Norfolk Southern deal, which calls for setting up a voting trust to oversee both railroads and installing Harrison as CEO of Norfolk Southern while regulators review the deal.
Norfolk Southern believes that would violate a prohibition against an acquiring railroad taking control of its target before a deal is approved.
Canadian Pacific also plans to ask Norfolk Southern shareholders at their annual meeting to vote on whether they want the two railroads to discuss a possible merger. But the nonbinding vote won’t include details of a specific proposal.
Canadian Pacific officials have said they believe combining the two railroads would create a more efficient operation. CP has also said it could cut roughly $1.8 billion in annual costs from the combined railroad.
Norfolk Southern has said those cuts would likely jeopardize the customer service and performance that customers expect. It is pursuing its own plan to cut $130 million in costs this year and create more than $650 million in annual cost savings by 2020 while improving service.
By JOSH FUNK