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CP revises bid for Norfolk Southern again

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World Coal,

Canadian Pacific (CP) continued its pursuit of Norfolk Southern (NS) with a second revised bit, adding a contingent value right (CVR) that could increase the payout to NS shareholders of as much as US$3.7 billion.

The rest of the bid remained similar with CP offering US$32.86 and 0.451 shares in the combined CP-NS company per NS share, which values NS at around US$27 billion.

“The company's board of directors will carefully consider the publicly disclosed, revised proposal from Canadian Pacific with the assistance of its financial, legal and regulatory advisors,” said NS in response to the bid.

NS also called on CP to obtain a declaratory statement from the US Surface Transportation Board, whose approval would be required for any deal, affirming its approval of the proposed structure of the deal.

Under CP’s proposal, a holding company would be created for CP and NS, with CP placed into a voting trust until regulatory approval had been received. Hunter Harrison, currently CEO of CP, would become CEO of NS, while Keith Creel, currently CP’s President and Chief Operations Office, would take us that position at CP.

Should regulatory approval not be granted, CP and NS would separate via a spinoff of one of the companies.

“If Canadian Pacific is confident that its proposed voting trust structure works, [it] can seek a declaratory order to that effect from the STB now,” said NS. “The STB has clear, statutorily-established authority to issue declaratory orders to remove uncertainty, and there is precedent for it doing so in the voting trust context.”

Meanwhile, Bill Ackman, manager of Pershing Square Capital Management, CP’s largest shareholder, has questioned BNSF’s ability to offer a competitive bid for NS after its Executive Chairman, Matt Rose, said that the company would not stand by and let further consolidation of the North American railway industry happen without it.

“If you look at our deal, we’re proposing to put CP in trust and for Hunter to go run NS, where the vast majority of the value creation takes place during the operating turnaround,” Ackman said on a conference call with CP executives to discuss the revised offer. “How can BNSF put in a competitive offer to that? Is [Warren] Buffett going to agree to put BNSF into trust? Who’s going to leave BNSF to go run NS waiting for an approval?”

BNSF is owned by Warren Buffet’s Berkshire Hathaway, which bought the company in 2010 in a deal worth US$44 billion.

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