Canadian Pacific Sends Another Takeover Bid To Norfolk Southern: What It Says

Shares of Norfolk Southern were lower by nearly 3 percent during Tuesday's pre-market trading session after the company confirmed it has received a second takeover offer from rival Canadian Pacific at a lower price.

On November 17, 2015, Canadian Pacific offered to acquire Norfolk Southern for $46.72 in cash plus a fixed exchange ratio of 0.348 shares in the new company that would own both railroads. Norfolk said the offer values its stock at $92.06 based on Canadian Pacific's closing price on December 7.

Canadian Pacific's revised proposal consists of $32.86 in cash and a fixed exchange ratio of 0.451 shares in the new parent company. Norfolk said this transaction values its stock at just $91.62 based on Canadian Pacific's closing price on December 7.

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"Canadian Pacific's revised, reduced proposal is not only less than what the Norfolk Southern board has already found to be grossly inadequate, it is even more uncertain and risky given the decrease in the cash consideration," Norfolk's CEO James A. Squires said in the press release. "In addition to being grossly inadequate, the proposal is based on a voting trust structure that we reviewed and do not believe would be approved by the STB [Surface Transportation Board]."

White Paper: STB Approval Unlikely

Norfolk cited a white paper report by the former Surface Transportation Board (STB) commissioners Francis Mulvey and Charles Nottingham published on Monday. The report evaluated the probability of a proposed takeover achieving the necessary regulatory blessings.

"Current STB regulations set a high bar for approval of Canadian Pacific's proposed voting trust and merger based on an untested public interest standard," the white paper concluded. "While no one can predict with absolute certainty what the STB will decide, we believe, based on our review of the public record, that the STB is unlikely to approve Canadian Pacific's proposed voting trust and the Canadian Pacific + Norfolk Southern merger.

"The former STB commissioners have concluded that the STB would be highly unlikely to approve a voting trust structure or the merger transaction, as neither would be in the public interest," Squires said following the release of the white paper. "The Norfolk Southern board remains confident that the continued execution of its strategic plan is superior to Canadian Pacific's grossly inadequate and high-risk proposal."