Proposed Norfolk Southern NS Canadian Pacific CP Acq/Merger

ADMIN: I have changed this to a "sticky" and placed it in the General Class I Discussion forum since it encompasses two Class I's.

Zeke wrote:This deal is going the hostile takeover route and the grossly incompetent NS management team's day of reckoning is drawing nigh.

Your personal hatred of NS is irrelevant to the approval of this deal. I'm sure you will cry conspiracy and bribery and make other derogatory suggestions as to why the deal is not approved. But it is a BAD DEAL and CP needs to focus their attention elsewhere.

CP buying NS will not instantly fix your personal problems. CP buying NS is no guarantee of a permanent fix. With CP's desire to gut the NS system it could end up worsening the situation in your examples. You have no proof that CP cares any more for the business in question than NS ... nor any proof that any other railroad nat CP might spin the line in question to cares for the business in question. Al you have is a hatred and bias against NS.

The proposed deal will fail. It is a bad deal.

I have made the case for a change in NS management as I believe it to be run in a arrogant and malevolent manner, not really the type of management suited to run a publicly held and important railroad. I can cite example after example of this malevolency; for instance NS taking operating unions to court on cases they know are lost causes just to drain a unions treasury. Every trick in the book these throwbacks have up their sleeve will and has been used against employees and shippers they view as troublesome. If one has a closed mind and no experience with this outfit I would suggest a bit of research to help view both sides of the argument. As for the strategy Bill Ackman and EHH are implementing it has a 50/50 chance of realization and of course they have probed the minds of the STB. Until recently Linda Morgan, former head honcho of the STB, had a seat on CP's Board of directors. Again there is a lot left unsaid and action going on behind the scenes and a ton of money to be made if the deal does come to fruition. EHH is like General Patton, the last pure warrior railroad man, who started out as car knocker on the Frisco and worked his way up to railroad titan. Those boulevardier's running NS into the ground couldn't carry the mans car inspector lamp. Do not underestimate or fall for what a bunch of dummies with MBA's think about his abilities.

Well, it looks like this conflict is getting ready to go hot... guess it just shows who's pulling the levers behind this.

Wall Street Journal:

Norfolk Southern’s Resistance to Rival’s Bid May Lead to Proxy Fight, Ackman Says

The continued resistance of Norfolk Southern Corp. to rival Canadian Pacific Railway Ltd. ’s effort to merge is “reasonably likely” to lead to a proxy fight, activist investor and Canadian Pacific’s shareholder William Ackman said on Tuesday.
...
Under terms first reported by The Wall Street Journal, Calgary-based Canadian Pacific offered $32.86 in cash for each Norfolk share and 0.451 of a share in a new holding company that would run the two railways independently until the Surface Transportation Board rules on the merger. The revised deal included less cash but is valued at around the same as last month’s proposal and aims to put cash in shareholders’ hands ahead of a regulatory review of the deal.

In a statement Tuesday ahead of a conference call by Mr. Ackman and Canadian Pacific chief executive Hunter Harrison with investors and financial analysts, Norfolk CEO James Squires said the revised proposal is “not only less than what the Norfolk Southern board has already found to be grossly inadequate, it is even more uncertain and risky given the decrease in cash consideration.”

Mr. Ackman, whose Pershing Square Capital Management LP holds about 9% of Canadian Pacific, said investors are frustrated with Norfolk Southern’s poor stock performance, making it a likely target for activists seeking to replace its board of directors. He also chided Norfolk Southern’s Mr. Squires for declining to discuss the revised plan.
...
Mr. Squires said last week that he is prepared to meet with Mr. Harrison on the condition that he agree to sign a confidentiality agreement.

Mr. Ackman said during the call that he faced similar resistance in 2011 when Pershing Square acquired a stake in Canadian Pacific and pushed to parachute in Mr. Harrison as the new CEO to turn around the underperforming railway. Canadian Pacific opposed the move and Mr. Ackman launched a successful launched a proxy battle that saw a majority of its directors replaced and Mr. Harrison appointed CEO.

... Mr. Squires said Canadian Pacific’s focus on cost cutting would harm many of Norfolk Southern’s service-intensive businesses such as automobile and consumer-goods transportation. Norfolk Southern said it already is cutting back in areas where volumes are low, like coal, and consolidated its main corporate office locations to two from three.
...
Canadian Pacific’s share price is down nearly 35% so far this year. Both companies have been hurt by declining commodities volumes.

Reuters:

CP says willing to take Norfolk bid to shareholders

Executives of Canadian Pacific Railway (CP.TO) touted the benefits of the firm’s proposed bid for U.S. railroad Norfolk Southern Corp (NSC.N) during a call Tuesday with analysts, but made it clear they would court activist investors and shareholders to fight a proxy battle to complete the deal.

In an unusual move, the executives were joined by shareholder Bill Ackman of Pershing Square Capital Management, who said that due diligence could be completed on Canadian Pacific's bid for the No. 4 U.S. railroad by the end of 2015.

Ackman, one of the world's most powerful activist investors who controls $14.8 billion in assets, at times dominated the two-and-a-half-hour call with analysts. He argued the combined stock of the two companies could be worth $237 by mid 2016 and the merged company could achieve 3 percent annual revenue from 2018 onward.
...
Ackman said Canadian Pacific CEO Hunter Harrison and he have both been contacted by activists interested in a proxy fight with Norfolk Southern and both said if necessary they will take the proposed merger directly to shareholders.
...
To alleviate regulatory concerns, CP said it was prepared to close the transaction using a voting trust.

During the call Tuesday, CP CEO Harrison said that he did not think a trust would be a "major hurdle" for approval of the deal. Harrison has a reputation as a railroad turnaround expert and has dramatically improved CP's metrics since taking over.

Norfolk Southern promptly rejected the bid and said Monday the merger was unlikely to win approval from U.S. regulators, citing a white paper by two former Surface Transportation Board commissioners that said regulatory approval would be incredibly hard to obtain.

The approval process by the STB could take up to 18 months and would require public hearings for comments for and against. On Monday, Cowen & Co released a survey saying 71 percent of rail customers oppose a merger between Canadian Pacific and Norfolk Southern.
...
CP said even if regulators ultimately decide that a merger will not be permitted, operational improvements will materially increased the value of Norfolk.
...

Both of these were hard to cut shorter, so apologies for the long post.

Humor from the Railroad Meme's Facebook page:

Ha!

In addition to The Times, other news sources have also reported this captioned development:

Mr. Ackman said that most of the value creation would be driven by management change at Norfolk Southern, rather than corporate consolidation, he said.

His proposal includes putting Mr. Harrison, the chief executive of Canadian Pacific, in charge of Norfolk Southern. Then, Canadian Pacific’s current president, Keith Creel, would become chief executive of Canadian Pacific, according to the presentation.

“I’m sure Mr. Squires would prefer to keep his job, and he’s fighting awfully hard,” Mr. Ackman said in the conference call.

Looks like Yäger could be at the NS throttle, merger or no, and his turnaround/slaughter, depending upon one's acceptance of Mr. Zeke's or Mr. Newpy's positions, could well move forth.

Don't look now but it looks like BNSF with their $66 billion in the bank has said if the merger proceeds any further they are going to give CP the stiff arm and buy NS out from under them.

To provide a source for the above:

Bloomburg:

Buffett's BNSF Open to Bid for Norfolk to Challenge CP's Offer
The railroad controlled by Warren Buffett’s Berkshire Hathaway Inc. is open to making a competing bid for Norfolk Southern Corp., the target of a $27 billion takeover effort by Canadian Pacific Railway Ltd.

While BNSF Railway Executive Chairman Matt Rose doesn’t favor more North American rail mergers, he said Thursday that the company won’t sit on the sidelines in any fresh dealmaking and could jump in to pursue Norfolk Southern.

A BNSF intervention would be akin to Union Pacific Corp.’s efforts to step in during the 1990s to “provide a competitive bid when the Burlington Northern and Santa Fe were merging,” Rose said in a telephone interview. “If there is consolidation to be had, we would participate as well.”
...
“We’ve never in this industry just done one merger,” said Rose, 56, who became executive chairman in 2014 after serving as chief executive officer since 2002. “You do a merger and then somebody else announces it because of this issue of stabilization of the industry and parity in various markets.”

...Rose said the carriers’ CEOs -- Mike Ward at CSX and Jim Squires of Norfolk Southern -- were aware that Fort Worth, Texas-based BNSF is circling.

“I’ve had general conversations with both of them and told them that we’re going to watch this with interest,” Rose said. He described the discussions as centering on how regulators might view railroad consolidation, but otherwise declined to give details.
...
“I’ve always said that the industry would merge into the final round with one of two conditions,” Rose said.

One scenario would be a major railroad stumbling into financial trouble, Rose said. “Or two, due to population growth and the economy that we needed a significantly larger amount of railroad capacity, which we think would be a benefit of a consolidation. We’re not at that point.”

But putting Canadian Pacific together with Norfolk Southern would leave CSX at a disadvantage, inevitably making that railroad a target as well, Rose said. Canadian Pacific sees $1.8 billion in merger benefits from a Norfolk Southern deal, which “quite frankly creates an uneven, unstable railroad network with CSX,” he said.

“Then you’ve got two railroads in the west that would be looking at, ‘Should one of us jump in with the NS assets or should the other one jump in on the CSX assets?’ ” Rose said.

Another rejection by NS:

http://www.wsj.com/articles/norfolk-sou ... 1450105405" onclick="window.open(this.href);return false;

Fair Use:

Norfolk Southern Co. on Monday officially rejected Canadian Pacific Railway Ltd. ’s latest $30 billion bid to merge the two railroads, bringing the rivals a step closer to a potential proxy fight.

The Norfolk, Va.-based railroad outlined in a letter its reasons for rejecting the “grossly inadequate” new offer, including what it said was less overall value and cash than CP’s first offer.

“Moreover, nothing in the revised, reduced proposal addresses the concerns of the Norfolk Southern board arising out of our extensive review of your prior proposal,” the letter adds, “including with respect to the substantial regulatory risks.”

I still think all this will end with a "Transcontinental duopoly". If Yäger is so anxious to expand his US system, he could have parity with CN simply by going after the KCS.

I think we'll end up with three: the western railroads BNSF and UP, along with CP, will divide up CSX, NS, and KCS. I haven't heard anyone mention CN/IC/GTW. Or any of the Class II's for that matter.

Jeff Smith wrote:I think we'll end up with three: the western railroads BNSF and UP, along with CP, will divide up CSX, NS, and KCS. I haven't heard anyone mention CN/IC/GTW. Or any of the Class II's for that matter.

How do you believe CSX, NS and KCS will be divided among BNSF, UP and CP? What lines of each will go to which western system?

BNSF recently stated their potential interest in NS, and I suspect if they made an offer it would be received much more warmly than CP's offers have been.

TRAINS subscribers; be sure to check out the material posted at Newswire. Some, I have not seen reported by other news sources.

MEC407 wrote:BNSF recently stated their potential interest in NS, and I suspect if they made an offer it would be received much more warmly than CP's offers have been.

I note that Warren Buffet and Berkshire Hathaway are already quite familiar with Norfolk Southern, having a held a large chunk of stock before the acquisition of BNSF..