Stock in both Canadian Pacific Railway Ltd. and Norfolk Southern Corp. shot up yesterday amid rumors the second-largest Class I railroad in Canada is mulling a potential takeover of NS.
Canadian Pacific Railway Ltd. (CP) is reportedly looking to acquire Norfolk Southern Corp. (NS), according to reports from BlombergBusiness news service, in what would be a massive cross-border North American railroad consolidation.
Bloomberg quoted “people familiar with the matter,” who said the second-largest Class I railroad in Canada has begun initial conversations with U.S.-based NS regarding a merger or takeover and is in the process of securing the necessary financing for such a deal.
Norfolk Southern, headquartered in Norfolk, Va., is valued at approximately $24 billion, according to Bloomberg.
Stock in both railroads shot up yesterday amid the tie-up rumors. At close of trading Monday, shares in CP had risen 11 percent to $88.67 from $79.89 at Friday’s close after trading as high as $89.49 during the day. NS stock hit a high of $143.96 per share on Monday before settling at $142.21 when trading closed, up 5.8 percent from $134.36 Friday.
Both companies have seen their stock plummet in 2015 due to decreased shipping volumes, particularly in coal and oil. Canadian Pacific shares had dropped 20 percent this year through Friday, while Norfolk Southern fell 27 percent during the same period.
A takeover of NS, the second- largest railway in the eastern U.S., would significantly expand CP’s reach in the eastern third of the country. Norfolk Southern operates about 20,000 route miles of track in 22 states and serves all of the major container ports along the East Coast, connecting with western railroads in Chicago, Ill. and Kansas City, Miss., both of which are also served by Canadian Pacific.
CP attempted a similar merger with NS rival and largest East Coast U.S. freight railroad CSX Corp. last year, but talks ultimately failed due to disagreements within upper management regarding the effects of consolidation on things like congestion.
CEO E. Hunter Harrison made it clear at the time the company was open to other merger talks, fueling speculation CP could go after NS or Berkshire Hathaway Inc.’s BNSF Railway Co. next.
“While regulatory concerns appear to be a major deterrent for many railroads considering combinations,” the railway said in a statement, “CP believes that given the right structure between the right players, and having thoughtful considerations and remedies to address shipper concerns, regulatory approvals are achievable.”
Canadian Pacific operates a network that includes all of southern Canada, as well as the U.S. grain belt in the Dakotas, Minnesota and Wisconsin, and Chicago. The company reported net income of $1.47 billion on $6.62 billion in revenues and $710 million in income on $3.3 billion in revenues in 2014 and the first half of 2015, respectively.
Representatives for both CP and NS declined to comment on the reports, but CP, at the request of the Investment Industry Regulatory Organization of Canada, said in a statement “there is no material news pending at this time.”
“CP does not comment on market rumor and speculation,” the Calgary-based railway added.
Bloomberg’s sources noted that current discussions between the two Class I railways are still in the preliminary stages and may not actually lead to a deal. Any potential tie-up would be subject to approval from the relevant Canadian and U.S. regulatory authorities.
CP reportedly eyeing merger with NS
