CP Proposes ‘Business Combination’ with Norfolk Southern

​Canadian Pacific today said it has sent an offer letter to Norfolk Southern Corp. proposing a business combination.

The proposal, which would create a transcontinental railroad, includes a sizable premium in cash and stock offered to NS shareholders, CP said. The merger would result in a company with the potential for faster earnings growth than either CP or NS could achieve on their own, all the while maintaining a strong investment grade credit rating, the Canadian railroad said in a news release.

CP said it strongly believes that the combined railroad would offer unparalleled customer service and competitive rates that will support the success of the shippers and industries it serves. It also said the merger would satisfy the U.S. Surface Transportation Board and Canadian regulators.

Among the combined company’s key innovations is a new approach to terminal access that would change the status quo in U.S. rail transportation, CP said. In the event the new company failed to provide adequate service or competitive rates, it would allow another carrier to operate from a point of connection over the combined company’s tracks and into its terminals, providing an unprecedented alternative to the affected shipper.

In addition, the new company would give shippers the choice of where they can connect with another railroad along its network, bringing an end to the practice of “bottleneck pricing” to a large number of shippers in the U.S. while further enhancing competition.

A combination, the Canadian railroad argued, would alleviate the long-standing issue of congestion in Chicago, which seized into gridlock in the winter of 2014 and hobbled economic growth. By channeling rail traffic away from Chicago, CP would create fluid routes through under-utilized hubs and free up much-needed capacity for other railroads that pass through the city, providing them with new, efficient and competitive service options for their own customers.