(Adds regulatory details; updates shares)
Nov 18 (Reuters) - Canadian Pacific Railway Ltd CP.TO said
its proposed $28.4 billion acquisition of U.S. railroad operator
Norfolk Southern Corp (N:NSC) NSC.N 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. urn:newsml:reuters.com:*:nCNWh90yka
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
CNR.TO and Burlington Northern Santa Fe Corp BNI.UL 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.
But, given the previous consolidation, the top four rail
shippers have some 90 percent of freight traffic, says Seth
Bloom, a veteran of the Justice Department.
"The STB has historically been feckless but this latest
merger is a real test for them," he said.
Canadian Pacific routes are just north and south of the
U.S.-Canada border and generally run east to west, while Norfolk
Southern is up and down the east coast of the United States.
They overlap primarily just south and east of the Great Lakes.
One group critical of railroads is the National Rural
Electric Cooperative Association (NRECA), which has complained
that its more remote members are at the mercy of a single
shipper to deliver coal and face higher prices as a result.
"We are concerned about the merger and the potential
negative impact on pricing and access," said Tracy Warren,
spokeswoman for the NRECA.
Canadian Pacific also said in the letter it had secured
financing commitment of $14.2 billion from JP Morgan Securities.
Canadian Pacific's shares closed up 5.6 percent at C$194.94
in Toronto, while Norfolk's stock ended up about 6.4 percent at
$92.49 in New York.
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BREAKINGVIEWS-Rail deal needs more than $28 bln to stay on track
- RTRS urn:newsml:reuters.com:*:nL1N13D14D
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