Norfolk Southern dismisses Canadian Pacific's new bid

Canadian Pacific Railway (CP) revised its unsolicited offer for Norfolk Southern in a deal that would create a transcontinental rail giant, but the two sides are split over whether the new bid is better or worse than the original offer.

Norfolk Southern (NSC), which rejected the initial bid,  on Tuesday swiftly dismissed Canadian Pacific's latest offer as a "reduced proposal."

But in a letter to Norfolk Southern CEO James Squires, Canadian Pacific CEO E. Hunter Harrison said the new bid is "improved."

In addition to a disagreement over whether the new deal is richer than the first, the two sides are locked in a dispute over whether Canadian Pacific's proposal to create a voting trust to complete the accord is legal.

"Canadian Pacific's revised, reduced proposal is not only less than what the Norfolk Southern board has already found to be grossly inadequate, it is even more uncertain and risky given the decrease in the cash consideration," Squires said in a statement.

In a conference call with investors, Harrison declined to say whether Canadian Pacific would pursue a hostile proxy fight to force Norfolk Southern into a deal.

"I don’t want to speculate and draw lines in the sand about what might be next," he said. "I personally think the offer is awful nice. It’s very generous."

Pershing Square Capital Management hedge fund investor Bill Ackman, a Canadian Pacific shareholder, called Harrison the "greatest railroader of all time" on a conference call, saying the 71-year-old veteran CEO is uniquely suited to turn around Norfolk Southern. He blasted Squires for fighting "to keep his job."

"What happens in situations like this is pride gets in the way," Ackman said.

A Norfolk Southern spokesperson declined to comment on the remarks made by Ackman and Harrison.

In the new offer, Canadian Pacific said it would pay $32.86 in cash and allocate 0.451 shares in the combined company for every share of Norfolk Southern stock. The previous proposal was $46.72 in cash and 0.348 shares in the new company.

Both sides confirmed details of the offer but disagree over how much it's worth.

The dispute is partially based on whether to analyze the deal based on the current value of Canadian Pacific shares or the projected value of the combined company when the transaction is finished.

Based on Monday's closing price, Norfolk Southern says the new offer is valued at $91.62 per share, whereas the first offer was worth $92.06.

Canadian Pacific says the new bid will be worth $125 to $140 per share when the deal closes in May.

Ackman acknowledged that analysts and investors may calculate their own figures for the true valuation of the offer.

Canadian Pacific has estimated that the deal would enable $1.8 billion in operational savings, including cost cuts through workforce attrition. The company also says the deal would ease rail congestion in the Chicago area.

Follow Paste BN reporter Nathan Bomey on Twitter @NathanBomey.