Rail Shippers Oppose Canadian Pacific-Norfolk Southern Merger -Survey

The Cowen survey found 71% of rail shippers did not support Canadian Pacific Railway’s proposed acquisition of Norfolk Southern Corp., fearing fewer options and higher prices.


Dec. 7, 2015 1:15 p.m. ET

Rail shippers largely oppose Canadian Pacific Railway Ltd.’s proposed acquisition ofNorfolk Southern Corp., according to a survey by Cowen and Co.

The survey found 71% of respondents opposed a merger between the two companies, which would create a rail network stretching across most of North America. Fearing fewer options and higher prices, about half of those opposed said they would officially express their objections to the Surface Transportation Board, which regulates the U.S. rail industry.

A campaign from shippers against an acquisition would add to the challenges that Norfolk Southern CEO James Squires says such a deal would already face in seeking approval from regulators. The board of Norfolk Southern unanimously rejected Canadian Pacific’s initial offer of $28 billion late last week, saying it undervalued the company and underestimated regulatory hurdles. But Canadian Pacific said it will continue to pursue a merger.

Strong opposition to a merger between the two companies comes even as opposition to big rail-mergers in general has waned. Whereas 76% of rail shippers surveyed in the beginning of 2015 were opposed to a merger among Class 1 railroads – carriers with annual revenues exceeding $250 million – 59% were opposed in Cowen’s latest survey.

Only about 13% of respondents said they would support a merger between Canadian Pacific and Norfolk Southern, saying it could lead to service improvements. But none of the survey respondents believe pricing would get better, the survey said.

“Without question, every ‘merger/acquisition’ … has led to fewer routing options for shippers,” said one respondent to the Cowen survey, who was not identified. “We’ve long passed the point where merger-generated service improvements have the potential to outweigh the anti-competitive impacts resulting from fewer routing options.”

Canadian Pacific CEO “Hunter Harrison does know how to run a railroad, but it is his way or the highway,” said another.

Given the opposition, Cowen said it expects Canadian Pacific’s share price to suffer in the short term if it continues to pursue the acquisition. The company’s shares were down 1.4% at $177.55 early Monday afternoon in New York. Norfolk Southern shares were up 1% at $92.93.

Write to Loretta Chao at loretta.chao@wsj.com

The Wall Street Journal — Rail Shippers Oppose Canadian Pacific-Norfolk Southern Merger -Survey