CP says it offers a 'sizable premium' for NS

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Aiming to add context to its offer to buy Norfolk Southern — and appease shareholders over what appeared to be a lowball bid — Canadian Pacific today released the full merger proposal letter CEO E. Hunter Harrison sent to his NS counterpart, James Squires.

“CP also wishes to correct any misconceptions about the sizable premium offered to NS shareholders,” CP says in a statement accompanying the letter. CP says its offer of a 50-50 cash-stock transaction was a 23 percent premium over NS’s 45-day average share price of $79.14. The CP letter was dated Nov. 9 and since then NS stock has climbed due to market speculation about a potential merger.

On Tuesday, NS said the offer from CP was “low premium,” coming in at less than a 10 percent bump over its current stock price.

In the letter to Squires, Harrison called the combination a “transformational opportunity” that would be a win for both railroads, their shareholders, and shippers.

“As our combined network creates more comprehensive end-to-end shipment solutions for our customers while reducing congestion in key corridors such as Chicago, network capacity will expand allowing us to improve service and lower costs – which is both pro-shipper and pro-competition,” Harrison wrote. “A combined network will also lead to faster growth for the new entity versus what either of us would be able to achieve on our own and, importantly, would create a larger, more diversified book of business less dependent on volatile commodities such as crude oil or thermal coal.”

Harrison also wrote that CP had done its homework on the regulatory environment, assuring “a smooth and expeditious review and approval process.” Assuming NS is willing and regulators would approve the merger – and those are big “ifs” – CP envisions closing on the deal on Dec. 31, 2017.

Yesterday NS said a merger “would face significant regulatory hurdles.”

The full text of CP’s letter to NS is available online.
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