Canadian Pacific Railway made a fresh attempt on a merger with Florida-based railway CSX even while it was publicly trying to take over Virginia-based Norfolk Southern.
After first pitching a tie-up with CSX in 2014 but being rebuffed, CP turned its focus to Norfolk Southern earlier this year with a $28 billion takeover offer that would create the largest rail company in North America. But as first reported in the Wall Street Journal, CP's management never fully abandoned their pitch to CSX even as they wooed Norfolk Southern.
"We've said all along that if we looked at the synergies between the two Eastern carriers, right now both of them would work for us," CP's CEO Hunter Harrison said, referring to overtures made as recently as January. The Norfolk Southern offer went public two months earlier, last November.
The argument in favour of both companies in CP's sights is similar — they are strong in an area of North America where CP currently doesn't dominate and would complement an expanded network in areas where CP does well. A tie-up with Norfolk Southern could save as much as $1.8 billion in overhead costs, CP says.
Currently, North America's railway network is a patchwork of rival tracks and lines, but dominated by seven so-called "Class I" names: Canadian Pacific and Canadian National in Canada, and five U.S. lines that each dominate in a geographic part of the U.S.:
- Burlington Northern Santa Fe in the Western U.S.
- Union Pacific in the same area.
- Florida-based CSX.
- Norfolk Southern, which covers most of the Eastern Seaboard down into the Gulf.
- Kansas City Southern in the southwest.
CP would love to link its Western Canadian network with either southern U.S. player to create a sprawling transcontinental network with more kilometres of railway than anyone else in Canada and the U.S, with access to the Atlantic, Pacific and Gulf of Mexico coasts.
The Norfolk Southern deal in particular would allow CP to bypass the bottleneck of Chicago, which in recent years has become so choked with railcars that it can take an entire day just to get through the city.
Cool reception so far
Norfolk Southern's board has rebuffed CP's advances on numerous occasions, and CP has taken its pitch directly to shareholders, pushing for a vote on their takeover offer at the company's upcoming annual meeting.
CP said in a release on Wednesday it is looking at all legal options in response to what it described as concerted efforts from unnamed rivals to block its proposed merger.
"It is unfortunate that CP must consider the use of litigation to ensure a level playing field and protect its rights," CP, Canada's second-largest railroad, said in a statement.
But even if CP is able to warm up the frosty reception they've thus far received from both CSX and Norfolk Southern, any merger faces long odds as it would face multiple regulatory hurdles both in Canada and the U.S. America's rail watchdog, the Surface Transportation Board, has put an unofficial freeze on all mergers of Class I railways since 1999 when CN tried to buy BNSF.