Norfolk Southern Steps Up Fight Against Canadian Pacific Merger.

Written on March 29, 2016.

Railroad urges employees to vote down friendly talks
By LAURA STEVENS 
Updated March 29, 2016 5:52 p.m. ET
Norfolk Southern Corp. urged employees to vote down Canadian Pacific Railway Ltd.’s
effort to enlist shareholders to press the board for friendly merger talks at its annual
meeting, which it scheduled for May 12.
In a letter to employees the company made public in a securities filing Tuesday, Norfolk
Southern Chief Executive Jim Squires said that the company is making good progress on
its restructuring plans and that employees should vote no on merger talks.
Separately, in the company’s proxy filed late Monday, the railroad’s board said it would
be willing to start merger discussions if Canadian Pacific “indicates a willingness to
meaningfully increase the value represented by its proposal,” and if the U.S. Surface
Transportation Board were to indicate that it would be willing to approve an interim
trust structure that would operate during a lengthy regulatory review.
Canadian Pacific has sought an order from the board declaring that the proposed
structure is valid.
Canadian Pacific “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 the railroad’s
chief executive, Hunter Harrison, in a 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.”
Norfolk Southern’s proxy says that Canadian Pacific has informed Norfolk that it will be
filing its own shareholder proposal to urge the two railroads to enter merger talks. In the
proxy, Norfolk Southern’s board recommends that shareholders vote against that
Canadian Pacific proposal.
Norfolk Southern includes an item on its proxy voting card for shareholders to vote on
the measure. Canadian Pacific will be sending separate voting cards to Norfolk Southern
shareholders.
“Every vote is important,” Mr. Squires wrote in his letter to employees, urging them to
vote promptly.
Canadian Pacific, backed by shareholder activist William Ackman, has been seeking to
create a transnational U.S. railway since 2014 when it made an unsuccessful overture to
CSX Corp. Mr. Ackman has promised investors at Norfolk Southern that Canadian
Pacific’s veteran CEO, Hunter Harrison, can repeat his turnaround success in Canada by
eliminating expensive bottlenecks in the fragmented U.S. rail network. Norfolk has
disappointed shareholders for years with one of the worst operating performances in the
industry.
Canadian Pacific first launched its roughly $30 billion takeover bid for Norfolk Southern
in November, but was rebuffed. After threatening a potential proxy fight, executives
decided to strike a friendlier tone, calling for shareholders to vote yes for merger talks.
Norfolk Southern’s board said in the proxy filing that it reviewed each of Canadian
Pacific’s proposals, and determined they were “grossly inadequate, substantially
undervalued Norfolk Southern, and would face substantial regulatory risks and
uncertainties that would be highly unlikely to be overcome.”
—Jacquie McNish contributed to this article.
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