Rather than pursue a potentially damaging proxy fight to install new leadership, Canadian Pacific is asking NS shareholders to urge the company’s board to “engage in good faith discussions with CP.”
Canadian Pacific appears to be shifting its tactics in its continued attempt to purchase number four U.S. railroad Norfolk Southern Corp.
CP executives had indicated previously the company would be willing to take its $30 billion stock-and-cash offer – which, according to a report in the Wall Street Journal has since depreciated to $27.7 billion thanks to a commodity slump that has hurt the stock value of both railways – directly to NS shareholders and engage in a proxy fight to replace existing management.
Now, it seem CP is taking a decidedly less hostile tact, asking NS shareholders not to vote to install new leadership or even consider the offer itself, but simply to urge the company’s board to enter into negotiations.
The Calgary-based railway said in a statement yesterday it plans to submit a resolution to NS shareholders to ask the railroad’s board of directors to “engage in good faith discussions with CP” regarding a merger it says “would create a true end-to-end transcontinental railroad that would enhance competition, benefit the public and drive economic growth.”
The deadline to submit proxy materials or shareholder proposals for the NS annual general meeting is Feb. 14, according to the Norfolk, Va.-based railroad’s website.
“NS shareholders have been telling CP from the beginning that their own board should, at the very least, talk to CP about a potential combination,” CP added. “CP’s shareholder resolution to NS asks shareholders to formally vote in favor of what they have been saying to CP anecdotally for months.”
“We are not asking NS shareholders to vote on the existing proposal; we are simply asking them to vote in favor of having their board talk to us,” said E. Hunter Harrison, CP’s chief executive officer. “We continue to believe in the potential to create a transcontinental railroad with NS and believe this is a fair and measured approach to getting a deal done.”
The change in tactics comes after the proposed deal was met with strong opposition, not only from the NS board, which rejected three separate acquisition offers as “grossly inadequate” and unlikely to win approval from the U.S. Surface Transportation Board (STB), but from rail industry groups, fellow Class I railways, members of Congress, unions and even NS customers.
CP last week published a third white paper regarding the proposed merger’s path to regulatory approval, to which NS responded, “The fact that CP has not sought a declaratory order from the STB for its voting trust structure shows that it has no confidence that it would ever be approved.”
But Harrison said continued poor performance on the part of NS could cause some in the chorus of naysayers to change their tune.
“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,” he said. “Our model performs in good times and bad, consistently driving shareholder value during the peaks and the valleys – surely that kind of performance is what shareholders would expect their board to deliver and they can only deliver it by working with us.”
UPDATE 4 p.m. Feb. 10, 2016:
Norfolk Southern Corporation today issued a statement responding to the non-binding shareholder proposal submitted by Canadian Pacific.
“NS has already met with CP and publicly provided clear detail regarding the NS Board’s concerns,” the company said. “While CP continues to publicly declare that NS should ‘talk to CP about a potential combination,’ we believe further discussions are not in the best interests of NS shareholders unless CP offers NS shareholders compelling value and addresses the regulatory issues inherent in its proposal.
“The NS Board carefully considered and unanimously rejected each of CP’s three unsolicited acquisition proposals, after it determined that each was grossly inadequate and would face substantial regulatory risks and uncertainties that CP would be highly unlikely to overcome,” it added. “Notably, CP has not addressed the NS Board’s concerns, nor sought a declaratory order from the Surface Transportation Board that would provide clarity regarding the likelihood of regulatory approval of its voting trust structure.”
Morgan Stanley & Co. LLC and Bank of America Merrill Lynch are acting as financial advisors to Norfolk Southern Corporation and Skadden, Arps, Slate, Meagher & Flom LLP, Hunton & Williams LLP and Morrison & Foerster LLP are acting as legal advisors, according to the statement.
CP shifts tactics in Norfolk Southern takeover bid
