UPDATE 1-Canadian Pacific revises hostile bid for Norfolk Southern

(Adds details from conference call, background on U.S.
regulatory environment toward rail mergers, response from
Norfolk Southern )
By Allison Lampert and Euan Rocha
MONTREAL/TORONTO, Dec 16 (Reuters) - Canadian Pacific
Railway Ltd CP.TO slammed Norfolk Southern Corp (N:NSC) NSC.N on
Wednesday, accusing it of misleading investors even as its
executives rolled out a new bid with increased shareholder
protections to acquire the U.S.-based railroad.
Executives from Canada's second-largest railroad said the
deal is now in the hands of Norfolk Southern's shareholders, and
urged its board to consider CP's latest proposal even as
industry skeptics questioned whether such a merger could gain
U.S. regulatory approval.
"The only way it's going to happen is if you show support
for this transaction," CP Chief Executive Hunter Harrison told
analysts on a conference call on Wednesday. "If you don't want
it to happen all you've got to do is tell us."
CP executives offered an additional 0.451 of a Contingent
Value Right (CVR) in a new holding company for CP and Norfolk
Southern that could be converted to cash and would increase the
value of the deal by up to $3.4 billion, they said.
Described as a type of 15-month "insurance policy," the CVR
would protect shareholders in the event that the company's stock
value falls below $175 a share in October 2017. CP estimates the
new holding company's stock will be worth $204 at the
transaction's expected closing in May 2016.
The CVR was added to the terms of an offer previously
rejected by Norfolk. For each share tendered Norfolk
shareholders would now receive a CVR, along with $32.86 in cash
and 0.451 of a share in a new holding company that would own
both Norfolk Southern and Canadian Pacific.
Each railroad would be run separately by two different CEOs.
Norfolk Southern said in a statement on Wednesday that its
board will "carefully consider" CP's latest proposal.
A full merger between CP and Norfolk would require the
approval of the U.S. Surface Transportation Board which
introduced rules in 2001 that place additional hurdles for
proposed rail mergers. Since then, no major proposed merger has
come before the STB, so Canadian Pacific's bid for Norfolk would
be a test case.
If the merger is rejected by the STB the two railroads, CP
and Norfolk Southern, would go back to trading as separate
stocks, CP said.
"If this is going to be a street fight, so be it," Harrison
said. "The clock is ticking and it's ticking down. And it's time
for some of us to take action."