Canadian Pacific Abandons Threat of Proxy Fight for Norfolk Southern Railway to pursue strategy of seeking Norfolk Southern shareholder support for friendly merger talks

Updated Feb. 9, 2016 3:32 p.m. ET By JACQUIE MCNISH and LAURA STEVENS
Canadian Pacific Abandons Threat of Proxy Fight for Norfolk Southern -WSJ
Canadian Pacific said it plans to file a resolution seeking Norfolk Southern shareholder support to ask the railway’s board to enter merger talks with Canadian Pacific.
“We believe this shareholder resolution is the clearest, fairest approach to a process that will result in an outcome beneficial to all stakeholders,” Canadian Pacific said in a statement.
A spokesman for Norfolk Southern declined to comment.
Canadian Pacific’s retreat from an aggressive proxy battle to replace some of Norfolk Southern directors, which was backed by prominent activist investor William Ackman, reflects its dwindling options after a difficult three-month campaign. The railway’s cashand-stock bid was initially valued at $30 billion and has since declined in value to about $27.7 billion amid a commodity slump that has depressed railway stocks.
Since Canadian Pacific first announced its share-and-stock merger offer in November, Norfolk Southern has refused to engage in discussions and a number of shippers, other Class 1 railways and politicians have lined up against the proposal.
Analysts said that Canadian Pacific’s less antagonistic approach was expected after Canadian Pacific Chief Executive Hunter Harrison expressed frustration about mounting opposition during the company’s earnings call in January.
“I think most investors were thinking that CP was seriously considering backing off,” said Mark Levin, a BB&T Capital Markets rail analyst.
A person familiar with Canadian Pacific’s plans said the railway has been surprised by the force of opposition to the deal, which has reduced substantially the odds of succeeding with a hostile takeover.
Canadian Pacific has filed a complaint with the U.S. Department of Justice alleging that some of its competitors have colluded to block its bid to create the country’s first transcontinental railway.
Canadian Pacific has promoted its complex Norfolk Southern merger plan, which includes an interim trust structure during a lengthy regulatory review, as an opportunity to revive a struggling U.S. railway that has disappointed investors as one of the least efficient Class 1 railways.
“Shareholders and analysts will be watching NS closely throughout 2016 and if they continue to underperform, the pressure to work with CP will only grow,” Mr. Harrison said in a statement.