UPDATE 4-CP Rail mulls buyback, dividend after dropping Norfolk bid -CEO

Mon Apr 11, 2016 4:18pm EDT
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(Rewrites throughout, adds context, outlook for industry consolidation, remarks from interview with CEO)

By Nick Carey and Allison Lampert

CHICAGO/MONTREAL April 11 (Reuters) - Canadian Pacific Railway Ltd Chief Executive Hunter Harrison on Monday said the company would consider using cash once planned to acquire rival Norfolk Southern Corp for a potential buyback, dividend, or combination of both.

In a phone interview from Chicago, Harrison also said he didn't believe that CP's decision to abandon its $28 billion bid for Norfolk Southern signaled the end of future consolidation among North America's major railroads.

"It's just the timing," he said.

Some analysts have speculated that Kansas City Southern could be a candidate for a deal, and the regulatory barriers might be lower than in the CP-Norfolk Southern scenario. But CP's Harrison said on Monday that Kansas City, which he called expensive, was "not a good fit."

The proposed CP-Norfolk Southern deal was criticized by some customers concerned about higher costs and reduced service, and would have been subject to scrutiny from the U.S. Surface Transportation Board (STB), which rewrote its merger rules following a flurry of big deals in the 1990s and has not approved a combination since 1999.

"I think the reaction to this potential merger shows that regulators, politicians and many of the most important rail customers had no appetite for a deal," said BB&T Capital Markets analyst Mark Levin. "It's hard to see any mergers happening in the near future."

Harrison said CP has a positive relationship with its customers, even ones that opposed the merger.   Continued...