Canadian analysts skeptical of CP-NS proposal

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The recent announcement by Calgary-based Canadian Pacific that it has made a substantial offer to purchase American rail giant Norfolk Southern has been greeted with a fair amount of skepticism in Canada.

Though CP CEO E. Hunter Harrison is no stranger to merger proposals there is sentiment that this current offer stems from CP board member Bill Ackman, who is also Pershing Square Capital Management's Founder and CEO. Harrison says that Ackman has not been a force behind this latest bid for NS.

That said, there is much more in the way of a merger than the need to satisfy the U.S. Surface Transportation Board.

Barry Schwartz, chief investment officer of Toronto’s Baskin Wealth Management chief, pointed out in an interview with the Canadian Broadcasting Corp. that there are "cross-border issues, security issues, safety issues ... the list goes on and on and on.

"CP is going to be keeping lawyers busy," he added, estimating any finished deal would be at least one year away from approval. There then are the unions, no fans of CP's job scythe-wielding tactics, and Transport Canada to contend with.

While CP hopes the purchase will be concluded in 2017, Benoit Poirier of Desjardins Capital Markets said in a report released following the announced purchase offer that he expects the regulatory process would likely take two to four years to complete, and be beneficial to crude-by-rail. That’s if Norfolk Southern doesn't reject the bid, which he said is likely.

Despite CP's claim that a Canadian Pacific-Norfolk Southern union would enhance competition, in his own report about the possible acquisition, David Tyerman of Canaccord Genuity commented that other railways that may feel they would be left at a competitive disadvantage.

UPDATE: Nov. 23, 2015, 9:53 a.m., corrected spelling of Bill Ackman's name and included E. Hunter Harrison's full name in the second sentence.
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