Meanwhile, the U.S. Army has sent a letter to the Surface Transportation Board opposing the Canadian railway’s proposed acquisition of Norfolk Southern as a potential threat to national security.
Canadian Pacific Railway has released yet another white paper arguing the merits of its proposed takeover of number four United States railroad Norfolk Southern Corp.
The Calgary-based railroad said in a statement the same “precision railroading philosophy” that has taken CP from “industry laggard to leader over the last four years” would “transform Norfolk Southern Corp. (NS) and eventually build a leading transcontinental railway in North America.”
“Precision railroading has enabled CP to lower its operating ratio dramatically, improve service, reinvest record amounts in its network and in the communities it serves, and create significant shareholder value in a very short time,” CP said.
“Politicians, shippers and others are calling for a strong, healthy and high performing rail system yet no one has the stomach to challenge the status quo,” added CP CEO E. Hunter Harrison. “Clearly, moving goods reliably and efficiently is top of mind for everyone in the industry; we believe precision railroading and a CP-NS combination address those challenges.”
CP since last November has made three separate unsolicited cash-and-stock offers for NS valued at around $30 billion, all three of which were rejected as “grossly inadequate” and unlikely to win regulatory approval from the U.S. Surface Transportation Board (STB). CP has continued the highly publicized takeover attempt undeterred, however, publishing several white papers in support of a merger to create a transcontinental railroad, petitioning the STB for a declaratory order confirming the viability of its proposed voting trust structure, and filing a proxy statement asking NS shareholders to force the board of directors to engage in negotiations with CP.
“CP believes that all stakeholders will benefit if the proposed transaction is evaluated on its merits and based on a full record that includes the opportunity for all interested parties to comment within the STB’s prescribed framework, free from political interference,” said CP. “CP remains hopeful that the STB will be able to offer clarity that will allow NS shareholders to make an informed decision on CP’s pending resolution.”
That “political interference” seems to be a reference to the swaths of business groups, including fellow Class I railways, rail unions and shipper customers, and lawmakers that have voiced their opposition to the prospective tie-up on the basis that a merger would cause further consolidation in the industry that would lead to a decrease in competition and service levels. Chairman of the U.S. House of Representatives Committee on Transportation and Infrastructure Rep. Bill Shuster, R-Pa., said earlier this week the deal is not in the best interests of the U.S. freight transportation system, railroad employees, rail shippers, and the short line railroads.
Most recently, the U.S. Army sent a letter signed by David Dorfman, a senior civil engineer for the Railroads for National Defense Program, to the STB opposing the proposed acquisition as a potential threat to national security.
The Army specifically took issue with CP’s proposed voting trust structure, which would allow Harrison to step down as CEO and become the head of Norfolk Southern prior to regulatory approval from the STB. CP has asked the STB to issue its declaratory order regarding the proposed voting trust by May 6.
“We are troubled by the possibility that Mr. Harrison could become a senior executive at Norfolk Southern in advance of the board ruling in favor of common control/merger between Canadian Pacific and Norfolk Southern,” it said in the letter. “If Mr. Harrison is a senior executive at NSR he may be placed in a position where he must make business decisions with potentially competing interests.”
“It is too early to determine whether either a CPRL+NSR merger itself, or a downstream merger involving other major railroads, would degrade national defense,” the letter added. “However, the potential certainly exists for either the CPRL+NSR merger or a downstream merger to adversely affect national defense.”
CP argues in its latest white paper it has a “tried and tested approach” to deliver results for customers, employees, communities and shareholders. The railway would utilize precision railroading, its philosophy of “constant monitoring and optimization of every asset throughout the entire organization.” The management ethos is based on five “foundations”: improving customer service, controlling costs, optimizing asset utilization, operating safely, and valuing and developing employees.
“Precision railroading has been successfully applied to transform two of the worst–performing Class I railroads into top performers, and CP strongly believes that it can do the same with underperforming NS,” it said in the white paper.
“This proposed merger addresses capacity challenges; provides better, faster service for shippers – and at a lower cost; and enhances competition by ending bottleneck pricing and provides modified terminal access,” CP said. “The end result would be a single-line, transcontinental option that improves market access and ensures the timely and efficient flow of freight – supporting the North American economy now and into the future.”
Stock in Norfolk Southern yesterday fell less than 1 percent to $80.45 per share by 3:38 p.m. in New York, leaving it down 4.9 percent this year, according to a report from Bloomberg news service. Canadian Pacific was little changed at C$170.90 (U.S. $ 131.55) per share, putting the stock 3.3 percent lower for the year.
CP states its case for Norfolk Southern takeover (again)
