by Nathan Bomey
Canadian Pacific Railway’s bid to acquire fellow rail giant Norfolk Southern came to an abrupt end Monday following months of contentious back-and-forth squabbling and heightened scrutiny from the Obama administration on anti-trust issues.
Canadian Pacific said in a statement that it would no longer pursue the takeover, which it had proposed publicly despite Norfolk Southern’s repeated rejections. It also withdrew a resolution that would have required Norfolk Southern shareholders to vote on whether to force deal talks.
“No further financial offers or overtures to meet with the NS board of directors are planned at this time,” Canadian Pacific said.
Norfolk Southern had repeatedly asserted that a merger would draw intense regulatory scrutiny, saying there’s a good chance it would have been rejected. The company also questioned the value of Canadian Pacific’s offer and said it could perform well on its own.
Norfolk Southern shares (NSC) fell 2.2% to $79.74 at 1:10 p.m., and Canadian Pacific shares (CP) rose 3.9% to $140.08.
Concerns that the deal would not have received the necessary regulatory approvals likely played a factor, said Training The Street CEO Scott Rostan, a former Merrill Lynch banker who worked on the deal that culminated in Norfolk Southern’s acquisition of certain Conrail assets in the late 1990s.
The Obama administration has increased scrutiny of mergers in recent months, including the Treasury Department’s scuttling of the Pfizer-Allergan pharmaceutical inversion and the Justice Department’s lawsuit to block the oilfield services merger of Halliburton and Baker Hughes.
“We obviously don’t know for certain, but those two events last week definitely change the tone and definitely changed the calculus of potential cross-border transactions,” Rostan said in an interview.
The prospective deal’s demise marks a setback for activist investor and Canadian Railway shareholder Bill Ackman, who publicly pushed for the deal and suggested that “pride” was preventing Norfolk Southern from giving the offer adequate consideration.
Canadian Pacific went so far as establishing a website, CPconsolidation.com, to promote the deal. It was still operational as of Monday morning.
“We have long recognized that consolidation is necessary for the North American rail industry to meet the demands of a growing economy, but with no clear path to a friendly merger at this time, we will turn all of our focus and energy to serving our customers and creating long term value for CP shareholders,” Canadian Pacific CEO E. Hunter Harrison said in a statement.
In its latest publicly revealed offer, Canadian Pacific said it would pay $32.86 in cash and allocate 0.451 shares in the combined company for every share of Norfolk Southern stock, in addition to compensation in the event that investors don’t value the combined company at the rate Canadian Pacific was projecting.
Norfolk Southern, which faced criticism from Canadian Pacific over what CP described as Norfolk Southern’s low earnings, said in a statement that it is “on track” to squeeze out more than $650 million in “productivity savings” by 2020.
“We thank our shareholders for their input and support throughout this process and our employees for their hard work and dedication to strengthening Norfolk Southern as a critical component of the nation’s transportation infrastructure,” Norfolk Southern said in a statement.