One of the two major coal-hauling railroads in the eastern U.S., Norfolk Southern Corp. (NYSE: NSC), on Nov. 17 confirmed that it has received an unsolicited, low-premium, non-binding and highly conditional indication of interest from the Canadian Pacific railroad to acquire the company for $46.72 in cash and a fixed exchange ratio of 0.348 Canadian Pacific shares per Norfolk Southern share, representing a premium of less than 10% based on closing prices on Nov. 17.
The NS said its board of directors, in consultation with its financial and legal advisors, will carefully evaluate and consider this indication of interest in the context of Norfolk Southern’s strategic plans, and its ongoing review of opportunities to enhance stockholder value through strategic, financial and operational measures and pursue the best interests of the Company and its stockholders. Notably, any consolidation among Class I railroads in North America would face significant regulatory hurdles, it added.
Norfolk Southern Corp. is one of the nation’s premier transportation companies. Its Norfolk Southern Railway subsidiary operates about 20,000 route miles in 22 states and the District of Columbia, serves every major container port in the eastern U.S., and provides connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal, automotive, and industrial products. Its coal-hauling business had been sharply depressed lately as the U.S. coal industry goes through a sustained downturn that may be endless considering new environmental restrictions on coal production and coal-fired power plants.
Canadian Pacific (TSX: CP) (NYSE: CP) on Nov. 18 disclosed the contents of the offer letter it sent to Norfolk Southern on Nov. 17 to clarify the details of a proposal that would result in the creation of a pro-competitive, pro-customer, coast-to-coast transportation solution. CP also said it wishes to correct any misconceptions about the sizable premium offered to NS shareholders.
CP said this proposal to NS shareholders has potential benefits that include:
- Creates transcontinental rail network connecting the major industrial production and population centers across North America
- Global reach through premier ports located across the U.S. Gulf, Atlantic and Pacific North American coasts
- Integrated operations across at least 4 major rail gateways
- Enhances service offering to shippers
- Combines two premier railroads with exceptional safety records
- More than US$1.8 billion in annual operating synergies achieved over the next several years
- Substantial tax savings in addition to operating synergies
CP said the combined network creates more comprehensive end-to-end shipment solutions for customers while reducing congestion in key corridors such as Chicago, with network capacity expanded allowing the combined railroads to improve service and lower costs. A combined network will also lead to faster growth for the new entity versus what either would be able to achieve on their own and, importantly, would create a larger, more diversified book of business less dependent on volatile commodities such as crude oil or thermal coal, CP said.
Canadian Pacific is a transcontinental railway in Canada and the United States with direct links to eight major ports, including Vancouver and Montreal.