The CP and NS Merger Battle Heats Up after CP’s Third Bid Is Rejected

Dec 30, 2015David Sparkman | MHLnews

The war of words between the top management of Canadian Pacific and Norfolk Southern intensified before the holidays just after the NS board of directors unanimously rejected a third purchase offer made by CP. The verbal jousting included a CP press release attacking NS and other U.S. railroads for giving their employees Christmas off.

“Our economy runs year round and shippers must be able to get their goods to market in a timely fashion, regardless of the date or the amount of snow on the ground,” says Keith Creel, CP president and chief operating officer.

The NS board had rejected two earlier bids of about $28 billion in cash and CP stock. CP then returned with a third offer that did not increase the cash component substantially but offered NS shareholders a bet on the combined railroads’ future. CP said it would pay NS investors up to $11.30 more per share if it turned out that the merged company shares were worth less than $175 each in October 2017.

NS stock rose to about $87 a share on Dec. 23, immediately following the NS board’s rejection of the third CP bid, and then dropped to just below $86 a share on Dec. 29. The rail company’s stock began the year around $110 a share and its 2015 low was about $72 at the end of August, before CP made its run at the company.

“It is apparent that neither the executive leadership at NS nor its board of directors are willing to sit down in an open and constructive dialogue about this transformational opportunity and that the interests of the NS board are not aligned with the best interests of NS shareholders,” CP declared in response to the NS board’s rejection of its third offer. “Therefore, CP will review its strategic alternatives,” the company added, without saying what those could be.

CP’s leading shareholder Bill Ackman claims NS management has failed to cut costs and make other operational changes needed to improve the railroad’s profitability. He said the same thing about CP when engineering its takeover, after which he slashed CP’s workforce by a third.

Ackman has said that if the NS merger ultimately fails, CP will possibly pursue acquiring other railroads, but didn’t delineate which ones.

CP Makes Bold Promises

CP says the combined railroads would be able to eliminate the Chicago chokepoint by routing trains around the city. CP also says that if the new company fails to provide adequate service or competitive rates, “it would allow another carrier to operate from a point of connection over the combined company’s tracks and into its terminals, providing an unprecedented alternative to the affected shipper.”  How it would determine if service was inadequate and rates were noncompetitive was left unexplained.

NS chairman Jim Squires says the Chicago routing solution doesn’t exist. “Given the layout of the existing routes of both companies, Chicago is and would remain the primary connecting point between CP and NS. Less than one train per day of current CP and NS connecting traffic could be rerouted around the Chicago hub,” Squires said during a December investor call.

Squires and NS also have argued that CP is unlikely to achieve Surface Transportation Board approval of such a merger, which CP’s CEO Hunter Harrison admits could take up to two years. CP has proposed putting ownership of CP into a voting trust while it runs NS pending STB approval. For its part, NS’s Squires told CP it should go ahead and obtain approval from the STB for such a trust instead of waiting for the terms of a merger to be negotiated.

In mid-December 10 members of the Illinois congressional delegation, including Democrat Sen. Dick Durbin and nine members of the House, wrote the STB asking it to carefully consider the merger’s potential negative impact on building a more efficient freight network in Chicago.

In addition to the STB in the U.S., in Canada the transaction would need to pass muster with the administration of the new Prime Minister Justin Trudeau, which has given no indication how it views the current situation, although CP says it is confident the Canadian government would approve the merger.

However, it is difficult to believe that a Liberal government would look with particular favor on a company run by Americans who have already slashed 5,000 to 6,000 jobs and parked power units and other rolling stock which CEO Hunter Harrison has said eventually may be sold. In October Harrison said the railway could cut as many as 500 more jobs, including “some further cleansing of headquarters” staff.

Harrison, who is a Memphis, Tenn., native, may not have done his company’s cause much good in Canada by declaring immediately after the election that the Conservatives and prior Liberal governments hadn’t done much in the past to help the railway. “Just leave us alone, give us a level playing field and let us run our business,” he said.

Is CP Weaker Than It Seems?

Although CP says it is not done pursuing NS, it has stopped short of a hostile takeover bid that would require it to substantially boost the cash component of its offer to buy NS stock from shareholders. One reason is that CP has promised its lenders it will not push the offer to the point that it will endanger the company’s debt rating, Harrison admitted during a recent interview on the Bloomberg cable TV channel.

As of Dec. 28 it seemed unlikely that Ackman’s hedge fund, Pershing Square, would be able to contribute additional funds because it had lost an estimated 20% of its shareholders’ value, about $1.5 billion, by investing heavily in the Canadian pharmaceutical firm Valeant, currently under investigation for stock manipulation and overpricing its drugs, and which faces coming to terms with what some observers say is an unsustainable debt load.

This is not likely to bolster CP’s case with Canadian authorities. Neither is the knowledge that Ackman was reported last March to be under FBI investigation for his own possible stock manipulation in waging a negative publicity campaign against Herbalife and then shorting its stock.

Ackman’s attempts to turn around Valeant suffered another blow on Dec. 28 when the company announced its CEO was taking a leave of absence because of severe pneumonia, and that he would be replaced by a three-person senior management team. Valeant stock then took another nosedive apparently because of its lack of a succession plan that would have allowed a single executive to step into the CEO position.

CP may be facing a similar issue. During his recent Bloomberg interview Harrison was asked about the fact that he is 72 and by his own admission it could take up to two years for merger approval to be completed. He promised that he would stick around to see the deal and approval process through to conclusion, but surprisingly failed to use the opportunity to mention whether CP has a succession plan in place.

Perhaps they could start with “cleansing” the executive who thought it would be good public relations to put out a press release on Dec. 21 attacking the management of NS—along with Union Pacific and CSX Corp.—for allowing their employees to stay home with their families on Christmas.

CP Rail revises Norfolk offer higher; says new bid adds $3.4-billion

ERIC ATKINS - RAILWAY INDUSTRY REPORTER

The Globe and Mail

Published Wednesday, Dec. 16, 2015 9:48AM EST

Last updated Wednesday, Dec. 16, 2015 12:34PM EST

Canadian Pacific Railway Ltd. has again revised its bid for Norfolk Southern Corp.

The Calgary-based railway on Wednesday morning held a conference call and offered shareholders in Virginia-based Norfolk Southern up to $25 more per share via a contingent value right, a publicly traded security that is similar to an option. CP says the move adds about $3.4-billion to the purchase price, and investors can sell the security upon the regulator’s decision on the deal in October, 2017.

“Think about this as an insurance policy you can sell,” said Bill Ackman, a CP board member and head of the company’s largest investor, Pershing Square Capital.

Norfolk Southern has already rejected two previous offers from CP, including one made last week.

In addition to the CVR, CP has offered Norfolk Southern shareholders $32.86 (U.S.) in cash, and 0.451 of a CP share, which values the offer at $89 a share or $26.5-billion. Norfolk Southern shares traded at about $91 on Tuesday on the New York Stock Exchange.

Norfolk Southern says CP’s offer is undervalued and unlikely to be approved by the U.S. regulator, the Surface Transportation Board (STB).

Mr. Ackman said on the call Norfolk Southern has “misled” its shareholders on the deal’s value, which he says offers a 68-to-71-per-cent premium and the chance to have Hunter Harrison as chief executive officer.

“It’s pretty clear they don’t want to be acquired,” he said.

Norfolk Southern has pointed to a “white paper” written by two former STB commissioners, Francis Mulvey and Charles Nottingham, that said the regulator adheres to rules that are tougher than those of the past.

“In our expert opinions, the STB is not likely to approve CP’s proposed voting trust or the CP and NS merger,” the paper said.

CP said it disagreed with that position.

“Their white paper was published before CP delivered its detailed presentation describing the key features of the proposed merger and related voting trust including our proposal to put CP in trust. As such, their white paper is based largely on inaccurate assumptions, rumour, speculation, and conclusions that are unsupported by fact or by law,” CP said on Tuesday.

Mr. Harrison said on Wednesday 144 trust proposals have been approved by the U.S. regulators ahead of mergers in the past decades, and he is confident CP’s will be, as well.

“This lies in the hands of the NS shareholders,” Mr. Harrison said. “The clock is ticking down and it’s time to take some action here.”

Buffett's BNSF Open to Bid for Norfolk Southern to Challenge CP's Offer

The railroad controlled by Warren Buffett’s Berkshire Hathaway Inc. vowed to join any consolidation in the North American industry, saying that Canadian Pacific Railway Ltd.’s $27 billion bid for a U.S. rival inevitably would trigger more deals.

BNSF Railway Executive Chairman Matt Rose is open to making a competing offer for Norfolk Southern Corp., the company targeted by Canadian Pacific, and CSX Corp. also would be “very much in play.” While BNSF doesn’t favor fresh dealmaking, the carrier won’t be sidelined if any occurs, Rose said Thursday in a telephone interview.

“We’ve never in this industry just done one merger,” said Rose, 56, who moved into his current post in 2014 after serving as chief executive officer since 2002. “You do a merger and then somebody else announces it because of this issue of stabilization of the industry and parity in various markets.”

BNSF’s willingness to pursue a tie-up underscores the potential challenge for the U.S. Surface Transportation Board, which would have to evaluate any deal. There have been no major U.S. rail mergers for more than 15 years, and the STB has new, untested rules requiring that it evaluate possible follow-on combinations as part of its regulatory review.

Share Rally

CSX and Norfolk Southern both were bright spots for the U.S. stock market Friday, when major indexes slumped. CSX rose 4.1 percent, the most in three months, to $25.72 at the close in New York while Norfolk Southern gained 2 percent to $89.44.

Norfolk Southern has snubbed Canadian Pacific, which wants to create a cross-border, coast-to-coast carrier in a North American industry dominated by six railroads: Norfolk Southern and CSX compete east of the Mississippi; Calgary-based Canadian Pacific vies with Canadian National Railway Co.; and BNSF goes head to head with Union Pacific Corp. in the western U.S.

Tony Hatch, a former Wall Street analyst who tracked many of the 1990s mergers that created the modern industry, said Rose’s comments were intended to slow down any rush to a round of deals that would shrink the industry’s ranks.

“We’re at this stage where everybody is saying, ‘Look if this happens it’s going to be kind of a big thing and not necessarily a good thing,’ ” said Hatch, who now runs ABH Consulting. “Matt’s move is a warning in order to prevent that.”

Union Pacific

Spokesmen for Norfolk Southern, Canadian Pacific and CSX declined to comment on Rose’s remarks, while Union Pacific’s Aaron Hunt said, “We oppose rail industry mergers in the current environment and believe the regulatory hurdles for future consolidation would be significant.”

Putting Canadian Pacific together with Norfolk Southern would leave Jacksonville, Florida-based CSX at a disadvantage, inevitably making that railroad a target as well, Rose said. Canadian Pacific sees $1.8 billion in merger benefits from a Norfolk Southern deal, which “quite frankly creates an uneven, unstable railroad network with CSX,” he said.

“Then you’ve got two railroads in the west that would be looking at, ‘Should one of us jump in with the NS assets or should the other one jump in on the CSX assets?’ ” Rose said.

A BNSF offer for Norfolk, Virginia-based Norfolk Southern would be akin to Union Pacific’s efforts to step in during the 1990s to “provide a competitive bid when the Burlington Northern and Santa Fe were merging,” Rose said. “If there is consolidation to be had, we would participate as well.”

Buffett completed his purchase of Fort Worth, Texas-based BNSF in 2010, a transaction valued at about $34 billion that he described as a bet on the U.S. economy because of railroads’ vital role in moving freight. BNSF could bring considerable resources to bear in future consolidation. Omaha, Nebraska-based Berkshire had more than $66 billion in cash at the end of the third quarter.

While there haven’t been any combinations among major North American carriers in the 21st century, BNSF does “scenario planning every year,” Rose said.

Rose said shippers don’t support large deals. They are concerned about having fewer options and the railroads having too much market power, he said.

“I just don’t get a sense that the marketplace wants to see a final consolidation,” Rose said. “The marketplace would tell you that they’re already concerned that there’s too much consolidation.”

Norfolk Southern Rejects Canadian Pacific's offer

Canadian Pacific’s Indication of Interest is Grossly Inadequate andNot in the Best Interests of Norfolk Southern and Its Shareholders 

Transaction Would Face Substantial Regulatory Risks and Uncertainties Highly Unlikely to Be Overcome

Norfolk Southern Confident That Its StrategicPlan Will Deliver Compelling Shareholder Value

Company to Host Conference Call at 8:30 am ET Today

Norfolk, Va., December 4, 2015 – Norfolk Southern Corporation (NYSE: NSC) (“Norfolk Southern” or the “Company”) today announced that its board of directors has unanimously rejected Canadian Pacific’s (TSX:CP)(NYSE:CP) previously announced unsolicited, low-premium, non-binding, highly conditional indication of interest to acquire the Company for $46.72 in cash and a fixed exchange ratio of 0.348 shares in a new company that would own Canadian Pacific and Norfolk Southern. After a comprehensive review, conducted in consultation with its financial and legal advisors, the Norfolk Southern board concluded that the indication of interest is grossly inadequate, creates substantial regulatory risks and uncertainties that are highly unlikely to be overcome, and is not in the best interest of the Company and its shareholders.

“We believe in our ability to generate greater shareholder value through execution of our strategy – delivering efficient and superior service to build a more profitable franchise based on price and volume growth, implementing efficiency measures, and increasing returns on capital to strengthen our financial performance, all while maintaining our disciplined capital return strategy,” said Chairman, President and CEO James A. Squires. “Norfolk Southern has made growth investments and we expect to realize the benefits of these investments in the years ahead, especially as our intermodal volumes continue to build. Specifically, we expect to achieve an operating ratio below 70 in 2016 with additional improvements over the next five years resulting in increasing ROE and an operating ratio below 65 by 2020. By maximizing our asset utilization, we believe we can achieve double-digit compounded EPS growth over this period. In short, Norfolk Southern is well positioned to deliver compelling value to our shareholders.”

Mr. Squires continued, “There is a high probability that, after years of disruption and expense, the proposed combination would be rejected by the Surface Transportation Board (“STB”). We also believe the STB would reject Canadian Pacific’s proposed voting trust structure, and that there is no certainty that any other voting trust structure would be approved. Even if the proposed combination were ultimately to be cleared, it would be subject to a wide range of onerous conditions that would reduce the value of the stock consideration that has been proposed.”

Mr. Squires concluded, “We believe that Canadian Pacific’s short-term, cut-to-the-bone strategy could cause Norfolk Southern to lose substantial revenues from our service-sensitive customer base. We also believe the proposed transaction risks harm to vital transportation infrastructure and the communities we serve. Any strategy that hurts our customers and the broader community is highly unlikely to receive regulatory approval and is inconsistent with the delivery of shareholder value over the long-term.”

The Norfolk Southern board, composed of 13 directors, 11 of whom are independent, undertook a comprehensive review of the Canadian Pacific proposal. The Norfolk Southern board, in making its determination, considered among other factors:

The Canadian Pacific indication of interest substantially undervalues Norfolk Southern

• Norfolk Southern, under the direction of its board of directors and a recently appointed Chief Executive Officer, is successfully executing a strategic plan to drive operational improvements. The board is confident that the continued execution of this strategic plan is superior to Canadian Pacific’s grossly inadequate and high-risk proposal
  
• The board believes that Canadian Pacific’s indication of interest is opportunistically timed to take advantage of a Norfolk Southern market valuation that has been adversely affected by a challenging commodity price environment, does not fully reflect infrastructure investments Norfolk Southern has made, and does not incorporate the upside from further improvements anticipated to result from the initiatives that the Company is implementing.

Norfolk Southern is successfully executing on its strategy 

• Norfolk Southern’s management team is successfully executing a number of revenue growth initiatives focused on pricing discipline and growth in merchandise and intermodal market opportunities.
• Norfolk Southern’s strategic plan is focused on providing superior customer service, continuing the recent improvement in network performance, and implementing efficiency measures, including managing headcount, increasing locomotive productivity, and integrating technological innovations.
• Norfolk Southern’s strategic plan provides for double-digit compounded EPS growth over the next five years, increasing ROE, and, by 2020, an operating ratio below 65.
• Norfolk Southern is committed to pursuing a disciplined capital allocation strategy while investing appropriately in its network. Over the past 10 years, since the inception of its share repurchase program, the Company has distributed nearly $15 billion to shareholders, consisting of an average of approximately $1 billion in share repurchases per year and a steadily increasing dividend with a 10-year annual compound growth rate of 14%. 

Transaction would face substantial regulatory risks and uncertainties that are highly unlikely to be overcome 

The board believes that the proposed transaction is unlikely to be completed given the substantial regulatory risks. Notably, any transaction must be determined by the STB to both “enhance competition” and be in the “public interest”.

Given the extended review process of two years or more and the uncertainty of approval, there would be significant disruption to Norfolk Southern’s business and operations. 

The Norfolk Southern board also believes that in the event the transaction did close, it would be only after the imposition of substantial regulatory conditions compromising the potential benefits of a combination and reducing the value of the proposed stock consideration.

There is no certainty that the STB would approve a voting trust - the voting trust structure proposed by Canadian Pacific is unprecedented and likely would not be approved

• Contrary to Canadian Pacific’s claims, a voting trust under which a transaction would close prior to final STB approval of the merger would not protect Norfolk Southern shareholders from regulatory uncertainty. Under STB rules established in 2001, any voting trust would require both a public comment period and approval by the STB based on a finding that the voting trust itself is in the public interest. There is no certainty that the STB would approve use of a voting trust.
  
• The voting trust structure proposed by Canadian Pacific is unprecedented, and it is highly likely it would be rejected by the STB because the Canadian Pacific management team would control or be substantially involved in the operations of Norfolk Southern prior to receiving regulatory approval of the proposed merger transaction.

The proposed transaction would be detrimental to Norfolk Southern’s customer baseand communities

Canadian Pacific’s unilateral open access proposal would undercut the financial performance of the combined entity as well as degrade service and dis-incentivize investment. 

Any strategy that adversely impacts Norfolk Southern’s service-sensitive customer base and communities is unlikely to receive regulatory approval and is inconsistent with the delivery of shareholder value over the long-term.

Canadian Pacific’s synergy targets are overstated and imply significant reduction in investment to maintain service

Canadian Pacific’s overstated synergy targets imply significant reduction to investment and employment levels, which the board believes would harm service levels and would be unacceptable to the STB.

Operating synergies are limited because the Canadian Pacific and Norfolk Southern networks serve entirely separate regions and only connect at five points. 

Any near-term cost savings that might result from applying Canadian Pacific’s short-term focused operating model on Norfolk Southern would be offset by traffic diversions, service deterioration and loss of service-sensitive customers. 

Open access has been widely documented to produce negative revenue synergies from traffic loss and rate compression while also increasing operating costs.

The transaction would not help Chicago congestion issues

• As the smallest Class 1 railroad in Chicago, accounting for less than 5% of all Chicago rail traffic, Canadian Pacific’s volumes are too small to impact Chicago rail traffic.
  
• The proposed transaction would likely increase Chicago congestion.
  
  
  • Less than 15% – or less than one train per day – of current
    Canadian Pacific-Norfolk Southern connecting traffic can be efficiently rerouted around Chicago.
     
  • Further, Norfolk Southern believes that the proposed transaction would cause more, not less, traffic congestion in Chicago. We expect Canadian Pacific would increase revenues by converting interline traffic between Norfolk Southern and both BNSF Railway (“BNSF”) and Union Pacific (“UP”) to single-line traffic in the proposed Canadian Pacific-Norfolk Southern system. Much of this Norfolk Southern traffic with BNSF and UP avoids Chicago today. Unlike BNSF and UP, Canadian Pacific does not have efficient Chicago bypass routes, so Canadian Pacific would have to route most of this traffic through Chicago.
     
• Not only do the lines of Canadian Pacific and Norfolk Southern not physically connect in Chicago, but neither company’s traffic can be moved to other Canadian Pacific-Norfolk Southern connecting points without all constituencies incurring substantial extra miles, cost and time.
  
• The following is the text of the letter that was sent on December 4, 2015, to Canadian Pacific’s Chief Executive Officer, E. Hunter Harrison​​​​​​, and its Chairman of the Board, Andrew F. Reardon.

Mr. E. Hunter Harrison
Chief Executive Officer
Canadian Pacific
7550 Ogden Dale Road S.E.
Calgary, AB T2C 4X9
Canada

Mr. Andrew F. Reardon
Chairman of the Board
Canadian Pacific

Dear Mr. Reardon and Mr. Harrison: 

The board of directors of Norfolk Southern Corporation, in consultation with its financial and legal advisors, has carefully reviewed your letter dated November 9, 2015, that we received on November 17, 2015, regarding a potential acquisition of Norfolk Southern. After a thorough analysis, the board of directors has unanimously determined that the proposed consideration set forth in your letter of $46.72 in cash plus 0.348 shares in a new company which would own Canadian Pacific and Norfolk Southern is grossly inadequate and substantially undervalues Norfolk Southern. Further, the board determined that the transaction proposed by you gives rise to substantial risks and uncertainties and is not in the best interest of Norfolk Southern and its shareholders.

The risks and uncertainties result from the substantial regulatory hurdles that exist, which are highly unlikely to be overcome. We believe the regulatory review process would take two years or more from now, with a very low likelihood of approval. Even in the unlikely event of approval, Norfolk Southern would be in limbo for this extended period, causing loss of momentum and disruption to our business and operations. In addition, substantial regulatory conditions would be required to win regulatory approval, adversely affecting the value of the combined company and the stock our shareholders would receive. 

While you have publicly raised the possibility that a voting trust could be used so a transaction could be closed before full regulatory approval has been obtained, you failed to disclose the fact that any voting trust would require a public comment period and regulatory approval process, with approval based on the STB finding that such a trust is in the public interest. There is no precedent for a voting trust being approved under the new rules adopted in 2001, and there is no certainty that the STB would approve use of a voting trust.

Moreover, the structure you have proposed, under which Canadian Pacific would take control of the management and operations of Norfolk Southern, is unprecedented and has never been approved by the STB. As such, we do not believe that regulators would approve the voting trust structure. In any event, a voting trust structure would not address the uncertain value of the stock our shareholders would receive, as the ultimate value of the combined entity would be impacted in large part by concessions imposed as part of the regulatory review of a transaction.

Beyond not being in the best interests of our shareholders given the regulatory risks and the grossly inadequate value of your proposal, we also believe that the proposed transaction would be detrimental to Norfolk Southern’s customer base. We have heard significant concerns from customers regarding a transaction with Canadian Pacific. Further, if Canadian Pacific were to implement its short-term strategy, it would cause Norfolk Southern to lose substantial revenues from our service-sensitive customer base. We also believe the proposed transaction risks harm to vital transportation infrastructure and the communities we serve.

We have seen your public statements regarding a desire to meet. As you know, I was the one who suggested a meeting with you following the incorrect Canadian press reports that we had been discussing a transaction. When we met you suggested the possibility of a further meeting, while acknowledging that the discussion might not be confidential; subsequently, I agreed to a meeting if you and Bill Ackman, the Principal of Pershing Square, a Canadian Pacific board member, and a controlling shareholder, entered into a customary confidentiality agreement, which you refused to do. The fact is that not only did we already meet, but I also offered you several opportunities to provide additional information to our board for it to consider in reviewing the transaction you proposed – you did not provide additional information. In light of the grossly inadequate terms you proposed, and the regulatory risks to both the approval of the transaction and the ultimate value of a combined entity, we do not believe that there is any basis to meet.

Our board of directors and management team are committed to continuing to act in the best interests of Norfolk Southern and its shareholders. Norfolk Southern is executing on its strategic plan to implement operational improvements, which the board believes will enhance value for all shareholders. Our board does not believe that the transaction you proposed reflects the value inherent in Norfolk Southern and the benefits of our strategic plan. Accordingly, the board has unanimously rejected your proposed transaction.

Sincerely,

Jim Squires

Morgan Stanley & Co. LLC and Bank of America Merrill Lynch are acting as financial advisors to Norfolk Southern Corporation and Skadden, Arps, Slate, Meagher & Flom LLP, Hunton & Williams LLP and Morrison & Foerster LLP are acting as legal advisors.

Conference Call and Webcast

Norfolk Southern will host a telephone conference call and a webcast on Friday, December 4, 2015 to discuss the unsolicited indication of interest from Canadian Pacific. Presentation slides will accompany the live webcast, both of which will be available on the Norfolk Southern website. You may participate in this call by dialing (866) 610-1072 for domestic locations or (973) 935-2840 for international locations. A passcode, 93852422, will be required. Jim Squires will comment on the unsolicited indication of interest beginning promptly at 8:30 a.m. Eastern Time before answering questions. The live webcast and accompanying presentation slides can be accessed through the Norfolk Southern website, www.nscorp.com.

A replay of the discussion will be available shortly after the call and can be accessed through www.nscorp.com, or by dialing (800) 585-8367 for domestic locations or (404) 537-3406 for international locations. A passcode, 93852422, will be required.

About Norfolk Southern

Norfolk Southern Corporation (NYSE: NSC) is one of the nation’s premier transportation companies. Its Norfolk Southern Railway Company subsidiary operates approximately 20,000route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal, automotive, and industrial products.

Forward-Looking Statements

Certain statements in this press release are forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995, as amended, including but not limited to statements regarding the indication of interest made by Canadian Pacific Railway Limited. In some cases, forward-looking statements may be identified by the use of words like “believe,” “expect,” “anticipate,” “estimate,” “plan,” “consider,” “project,” and similar references to the future. Forward-looking statements are made as of the date they were first issued and reflect the good-faith evaluation of the Company’s management of information currently available. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control, including future actions that may be taken by Canadian Pacific Railway Limited in furtherance of its unsolicited proposal. These and other important factors, including those discussed under “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2014, as well as the Company’s other public filings with the SEC, may cause our actual results, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. Forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, the occurrence of certain events or otherwise, unless otherwise required by applicable securities law.

Contacts:

Media Inquiries:

Frank Brown, 757-629-2710 (fsbrown@nscorp.com)

Investor Inquiries:
Katie Cook, 757-629-2861 (InvestorRelations@nscorp.com)

Or

Joele Frank / Dan Katcher / Andrew Siegel

Joele Frank, Wilkinson Brimmer Katcher

212-355-4449

Canadian Pacific Railway Ltd., the second-biggest railroad in Canada, is exploring a takeover of U.S. carrier Norfolk Southern Corp. in a fresh attempt to consolidate the North American industry, according to people familiar with the matter. The shares surged on the news.

Canadian Pacific is raising financing and has held early-stage merger talks with Norfolk Southern, which is valued at about $24 billion, said two of the people, who asked not to be identified because deliberations are private. Discussions are preliminary and talks may not progress or lead to a deal, they said. Representatives for Canadian Pacific and Norfolk declined to comment.

A move for Norfolk Southern, the second-biggest railroad in the eastern U.S., would revive Canadian Pacific’s effort to build a transcontinental carrier after talks with CSX Corp. failed last year. In floating the idea of a CSX tie-up, Canadian Pacific Chief Executive Officer Hunter Harrison upended the long-held view in the industry that it was fruitless to even discuss another merger because regulators would object.

“We would view a potential transaction positively,” Desjardins Capital Markets analyst Benoit Poirier said in a note to clients. The challenge, he said, would be winning regulators’ blessing, which makes it “unlikely that a transaction can be completed in the short term.”

Industry Consolidation

Dealmaking since U.S. railroad deregulation in 1980 has shrunk the number of major U.S. carriers to four alongside Canadian Pacific and Canadian National Railway Co. But Harrison, 71, is a veteran of past rail mergers, and has led an operational turnaround at Canadian Pacific since being lured out retirement in 2012 by activist investor Bill Ackman, whose Pershing Square Capital Management is the biggest shareholder. The railroad’s market value was about C$27 billion ($20 billion) as of Friday.

Harrison previously ran Canadian National, where he spearheaded the 2007 agreement to buy Elgin, Joliet & Eastern Railway Co. He was CEO of Illinois Central Corp. when Canadian National agreed to buy that carrier in 1998 in an acquisition valued at about $3 billion.

Norfolk Southern jumped 11 percent, the most since 2008, to $88.62 at the close in New York, while Canadian Pacific’s 5.7 percent rally to C$188.79 in Toronto marked the shares’ biggest gain since 2013.

Trading Statement

“There is no material news pending at this time,” Canadian Pacific said in a statement, citing a request from the Investment Industry Regulatory Organization of Canada that it respond to the day’s stock trading. “CP does not comment on market rumor and speculation.”

North American railroads have focused on smaller acquisitions in recent years after BNSF Railway Co.’s effort to buy Canadian National fell apart in 2000 amid opposition from the U.S. Surface Transportation Board.

The last previous major deal involving major U.S. or Canadian carriers was the breakup of Conrail Inc., announced in 1996, with CSX Corp. paying $4.3 billion for some of those assets and Norfolk Southern getting others for $5.9 billion, according to data compiled by Bloomberg.

Norfolk Southern operates about 20,000 route miles (32,000 kilometers) of track snaking through 22 eastern states, and serves each of the region’s major container ports. Its connections with western railroads include Chicago and Kansas City, Missouri -- two cities served by Canadian Pacific.

Canadian Pacific’s network spans southern Canada from Montreal to Vancouver, and turns south to cut across the U.S. grain belt in the Dakotas, Minnesota and Wisconsin before connecting to the rail hub of Chicago.

The railroads’ cargo markets are complementary. Intermodal shipments -- goods in containers that can be hauled by ship, rail and truck -- made up 22 percent of Norfolk Southern’s $11.6 billion of 2014 revenue, followed by coal with 21 percent. Autos and auto parts contributed about 9 percent.

Canadian Pacific’s biggest shipping category by revenue was industrial and consumer products, at 28 percent of last year’s C$6.62 billion of revenue.

The stocks of both companies had been falling this year amid declining shipping volumes, due in part to drops in cargo such as coal and oil. Canadian Pacific fell 20 percent this year through Friday. Norfolk, Virginia-based Norfolk Southern declined 27 percent in that span.

The Expanded N Scale Layout Progress Report

Progress on the expanded N scale layout is slower than I had hoped it would be, but I am determined to take my time to get exactly what I want. I am still in the process of buying up the track I need to get the expanded layout. I have the innerloop completed and I am working on getting the outerloop done.
I have all the locomotives I need for two freight trains, one Canadian National and one Canadian Pacific. The Canadian National Rolling stock is completed and ready to go on the track I still have a lot more Canadian Pacific rolling stock to get before I can call that train complete.

From the look of the size of the track layout I will need to build 4 4X8 tables to accomodate the layout. they will form a U shape.

My CP Rail Locomotive Breakdown

My coffee table N scale layout is suffering a CP Rail GP35 locomotive breakdown. The motor seems to have stopped running. I had 2 GP35's pulling a freight train, road numbers 5023 and 5024. 5023 is the locomotive that broke down. I need to take it and my Ann Arbor GP35 to Brasseur's Electric Trains in Saginaw Michigan for repair. This will be the first time I have used them to repair N scale Locomotives. I have used them many times to repair HO scale Locomotives and have been very satisfied. I hope they can fix my N scale Engines as well.

My Expanded N Scale Layout

I am almost ready to build the tables to put the layout on. I will need to build 3 or 4 4X8 tables where I can set up the track. I will have 2 loops in the configuration shown above. One loop will fit inside the other. On the inner loop I will run a Canadian Pacific Freight Train. On the outer loop I will run a Canadian National Freight Train. I still need to buy the balance of the track that I need, I have most of it already. I am thinking I am still about 2 years away from completing the tables and track.

My N Scale Canadian Pacific Freight Train

My Coffee Table N scale layout Supports a Canadian Pacific Freight train It is pulled by 2 GP35's road numbers 5023 and 5024

Followed by 2 Ann Arbor boxcars road numbers 1102 & 1121


That is followed by a Detroit & Mackinac boxcar road number 3118 and 2 tank cars


Then followed by 2 Norfolk & Western covered hoppers road number 71253


And finally followed by a New York Central coal car road number 494230 and a Canadian Pacific caboose.

The N Scale Canadian National Layout Is Nearly Complete

After a long time collecting the pieces necessary to complete the layout, I find that I have all I need to complete the Canadian National side of the layout. I still have to complete the Canadian Pacific side. Once that is done I can build the tables necessary to support the combined layout. I figure it will take me a few years to get the Canadian Pacific side ready to go.

The basic track layout design loosely follows the diagram shown below:

There will be Two parallel tracks on seperate transformers. Once the Tables are built I can lay out the track and begin collecting the buildings and start on the landscaping.