Many possible pitfalls await Canadian Pacific's Norfolk bid

Thu Dec 17, 2015 6:08pm EST
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By Nick Carey

CHICAGO Dec 17 (Reuters) - Canadian Pacific Railway Ltd's $27 billion bid for Norfolk Southern Corp risks coming unstuck due to regulatory scrutiny of its impact on the U.S. rail market, in particular the possibility it could spark competition-crushing rival deals, according to former regulators and analysts.

Led by enigmatic, septuagenarian railroad legend Hunter Harrison, Canadian Pacific has assured investors that what it proposes - especially putting the transaction in a voting trust - has been approved in the past.

Canadian Pacific made its first bid for Norfolk Southern last month, arguing that it would improve competition and boost its target's performance that has flagged recently due to declining coal volumes.

But assuming the hostile bid makes it through a long and nasty proxy fight - "If this is going to be a street fight, so be it," Harrison said on Wednesday - the Canadian railroad would be in uncharted territory.

This would the first deal judged by the Surface Transportation Board, the U.S. rail regulator, since the regulator rewrote the merger rules in 2001.

That followed major mergers in the 1990s resulting in severe service disruptions that "caused a great deal of heartburn," former STB vice chairman William Clyburn told Reuters. Clyburn was on the board from 1998 to 2001.

STB's chief concern at that time was that the number of major railroads in North America had dwindled to just seven from 35. The most controversial part of the new rules was the board had to "look around the corner" at what any proposed merger would mean for whole sector, Clyburn said.

No. 1 U.S. railroad Union Pacific Corp has said in regard to Canadian Pacific's bid that it will act in the "best interests of our customers and our shareholders."   Continued...