Third time not a charm for Canadian Pacific.

NS rejects latest offer from Calgary
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NORFOLK, Va. – Norfolk Southern has rejected Canadian Pacific’s third merger offer Wednesday morning, dismissing it as a “grossly inadequate” bid, which creates regulatory risk that is not in the best interests of NS or its shareholders.

CP’s latest offer, made on Dec. 16, would give NS shareholders $32.86 in cash in May 2016 and 0.451 shares in the new CP-NS company. It also would provide NS shareholders with 0.451 of a contingent value right, or CVR, that would give investors up to $25 per share if the CP-NS share price dipped below $175. NS says the offer is inadequate even with the CVR.

In a letter to CP CEO E. Hunter Harrison and its chairman, Andrew Reardon, NS CEO James Squires and Lead Director Steven Leer say that CP has done nothing to “address significant regulatory hurdles.” These include CP’s proposed voting trust structure, which would put CP in trust and put Harrison in charge of NS while the U.S. Surface Transportation Board takes 16 months or so to review the merger.

NS says CP could seek a declaratory order from the STB to see if the voting trust structure would work – something that CP has said is not necessary. “Your decision not to seek an order shows a lack of confidence in your proposed structure,” Squires and Leer write.

NS also says there is no reason to discuss a merger unless CP makes a “compelling offer,” addresses regulatory issues, and seeks a declaratory order on the voting trust.

“We also note your repeated public statements that you are not willing to increase your offer regardless of whether we were to meet,” Squires and Leer write.

CP says it its disappointed in NS’s response and is considering its options.

“It is apparent that neither the executive leadership at NS nor its board of directors are willing to sit down in an open and constructive dialogue about this transformational opportunity and that the interests of the NS board are not aligned with the best interests of NS shareholders,” CP says in a statement. “Therefore CP will review its strategic alternatives.”

CP previously said it would consider a proxy battle that would result in a merger. One route would be to ask NS shareholders to direct the board to seek a merger with CP. Another option would be to field a slate of board candidates who would be friendly to a merger.

Norfolk Southern’s annual shareholder meeting will be held in May.

This story was updated to reflect CP's response.

NEWSWIRETrains News Wire

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