Canadian Pacific abandons proposed merger with Norfolk Southern

The proposed US$30 billion merger of Canadian Pacific Railway Limited (TSE:CP, Mkt cap 29.07B, P/E 22.05, Div/yield 0.35/0.76, EPS 8.40, Shares 153.02M) with Norfolk Southern Corp. has crumbled under the pressure of opposition who have argued that the deal would diminish competition.

The merger’s opposition, which includes rival railroads, shippers and U.S. politicians, made its resistance known as soon as the bid was first announced in November, the Wall Street Journal reports.

Six months later, Canadian Pacific’s board has decided to withdraw from the deal, adding that it has no plans to initiate merger talks with other competitors.

“I doubt very much we will be reaching out to anyone else. We fought the good fight; we tried to educate the public. But the political and economic environment was against us,” said Chief Executive Hunter Harrison said in an interview on Monday.

Most notable opposition included the warning from BNSF Railway Co. and Union Pacific Corp that the deal would set in motion a final round of industry consolidation, resulting in an increase in the number of major freight rails – a figure which currently stands at seven.

Meanwhile, The Federal Railroad Administrator followed up by saying she would scrutinize “significant safety hurdles” resulting from merging any of the U.S.’s major railroads.

Then last month, the U.S. Justice Department drew attention to Canadian Pacific’s plan to hold Norfolk Southern in a trust until regulators completed a lengthy review of the proposed combination.

As per rules introduced by the U.S. Surface Transportation Board in 2001, merger applicants must prove that a major deal is consistent with the public interest by enhancing competition.

Norfolk Southern is the fourth largest North American railroad by annual revenue, while Canadian Pacific is second smallest. The proposed merger would have created one of North America’s largest railroads, with annual revenues of about US$16 billion.

Canadian Pacific Railway Limited, header-quartered in Calgary AB, operates railways in Canada and the United States and provides logistics and supply chain expertise. CP provides rail and intermodal transportation services over a network of approximately 13,700 miles, serving the principal business centers of Canada from Montreal, Quebec, to Vancouver, British Columbia (B.C.), and the United States Northeast and Midwest regions. The Company transports bulk commodities, merchandise freight and intermodal traffic. More from Reuters »

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