Canadian Pacific Abandons Threat of Proxy Fight for Norfolk Southern -- Update
10 February 2016 - 11:06AM
Dow Jones News
By Jacquie McNish and Laura Stevens
Canadian Pacific Railway Ltd. backed away from a threatened
proxy battle to unseat Norfolk Southern Corp. directors, opting to
enlist the Virginia rail operator's shareholders to press the board
for friendly merger talks.
Canadian Pacific said it would submit a nonbinding resolution to
the company's coming shareholders' meeting calling for the board to
start negotiations. The Calgary, Alberta-based railway has been
surprised by the force of opposition to the deal, according to a
person familiar with its plans.
"We believe this shareholder resolution is the clearest, fairest
approach to a process that will result in an outcome beneficial to
all stakeholders," Canadian Pacific said in a statement on
Tuesday.
Norfolk Southern said it wouldn't support further discussions
barring a new offer with "compelling value" and that addresses
regulatory issues.
The Norfolk, Va., company's stock rose 1%, or 93 cents, to
$71.42, and Canadian Pacific gained nearly 2% to $124.10, both in 4
p.m. New York trading on Tuesday.
Canadian Pacific's retreat from pursuing a hostile takeover
reflects its dwindling options after a three-month campaign that
has failed to draw wider support. Its bid is backed by activist
investor William Ackman, who sits on the Canadian railroad's board
and whose hedge fund owns about 9% of its shares.
Norfolk Southern's board has dismissed the hostile bid as
inadequate and unlikely to win approval of regulators in a process
that is expected to last years.
Since Canadian Pacific first announced a cash-and-stock merger
offer in November, Norfolk Southern has refused to engage in
discussions. A number of shippers, other large rail operators and
politicians have lined up against the proposal.
Canadian Pacific's move for shareholder support was seen by
analysts as an acknowledgment that a combination with Norfolk is
unlikely unless negotiated on friendly terms with Norfolk. Its
complex merger proposed includes an interim trust structure that
would operate during a lengthy regulatory review.
"I think it speaks to CP realizing the importance of a
transaction being as friendly as possible," said Justin Long, an
analyst for investment bank Stephens Inc.
The continuing pursuit of a merger reflects a belief that it can
wring greater support from some Norfolk Southern's holders that
have expressed disappointment with its high ratio of operating
costs to revenue, and revive the struggling business.
"Shareholders and analysts will be watching NS closely
throughout 2016 and if they continue to underperform, the pressure
to work with CP will only grow," Canadian Pacific Chief Executive
Hunter Harrison said in a statement.
Canadian Pacific has filed a complaint with the U.S. Department
of Justice alleging that some of its competitors have colluded to
block its bid that would create the country's first
transcontinental railway.
The bid initially was valued at $30 billion and has since
declined in value to about $27.7 billion amid a commodity slump
that has depressed railway stocks.
Write to Jacquie McNish at Jacquie.McNish@wsj.com and Laura
Stevens at laura.stevens@wsj.com
(END) Dow Jones Newswires
February 09, 2016 18:51 ET (23:51 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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