CP confirms merger offer

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Two Canadian Pacific trains, with a variety of locomotives, meet near Oconomowoc, Wis., in November 2014.
Brian Schmidt
TORONTO — Canadian Pacific says openly it wants a merger with Norfolk Southern hours after its COO declined to comment on the prospect at an investor conference.

In a news release made public moments ago, CP confirmed that it sent a letter to NS offering a “business combination.”

The news release also says a combined CP-NS would move traffic away from Chicago and its bottlenecks. Traffic would likely move through points where the two railroads already connect, such as Buffalo and the Kansas City area.

Earlier in the day, CP COO Keith Creel spoke before the Scotiabank Transportation and Aerospace Conference, declining to comment on the merger rumors.

But Creel did say that any railroad merger would have to involve two friendly partners. Creel spoke in general terms about CP’s contention that the industry needs to consolidate in order to further improve service, increase capacity, and get traffic away from Chicago’s congestion.

“We think eventually, it’s going to happen,” Creel says.

An end-to-end merger that would improve service and boost competition would be a recipe for success at the U.S. Surface Transportation Board, Creel says. But for a deal to make sense, Creel says shippers would have to be on board and CP would have to have a friendly merger partner so the railroads would speak with a common voice. The railroad used similar language in its news release.

CP is taking the lead in promoting consolidation because it’s the right thing to do, Creel says, and because the railway’s service model and lower costs help shippers win in their end markets. “That’s compelling,” he says.

Creel says that the merger process will not be easy but that regulatory hurdles can be overcome.

As for the timing of industry consolidation, Creel, 47, says: “I’ve got a lot of years left to railroad. It’s going to happen within my career.”

The other major Class I railroads – BNSF Railway, Canadian National, CSX, and Union Pacific – all say mergers are not necessary and would face an uphill battle to receive regulatory approval. Trains News Wire gauged those railroads opinions on Monday.
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