UPDATE 2-CP Rail touts $1.8 bln savings from Norfolk deal
(Adds regulatory details; updates shares)
Nov 18 (Reuters) - Canadian Pacific Railway Ltd said its proposed $28.4 billion acquisition of U.S. railroad operator Norfolk Southern Corp would help the combined company to save at least $1.8 billion annually.
The combined company will also have substantial tax benefits, Canadian Pacific said in a letter it sent to Norfolk on Tuesday.
Canadian Pacific made the letter public on Wednesday after Norfolk all but rejected the offer, calling it "low-premium" and warning of significant regulatory hurdles.
The takeover proposal "may be the first step on a journey that could see the Canadian carrier eventually going directly to Norfolk's shareholders before facing a long and drawn out regulatory process," Cowen and Co said in a note on Wednesday.
The brokerage added that a rejection by Norfolk's board is likely "a foregone conclusion," and that this could lead Canadian Pacific to sweeten the offer a bit.
Because of a quirk in U.S. law, rail mergers are not reviewed by the U.S. Justice Department or the Federal Trade Commission but by the Surface Transportation Board (STB).
The freight industry underwent a rapid consolidation between 1980 and 2000, when the STB forced Canadian National Railway Co and Burlington Northern Santa Fe Corp to abandon a deal while it re-wrote merger rules.
Under the rules, which came into effect in 2001, the government doesn't have to prove that a merger is anti-competitive. Instead, the companies have to show that the deal is in public interest. Continued...