Calgary, Canada-based railroad operator Canadian Pacific Railway Limited CP was left disappointed when Norfolk Southern Corporation NSC turned down the former’s buyout offer yet again. The Norfolk, VA-based railroad operator stuck to its earlier stance while rejecting Canadian Pacific’s latest offer, asserting that even the sweetened cash and stock offer is “grossly inadequate” and significantly undervalues the company.
Canadian Pacific’s latest buyout bid made on Dec 16 stated that shareholders of Norfolk Southern can receive $32.86 in cash and 0.451 share of stock in the combined entity apart from 0.451 of a contingent value right (which will have a maximum value of $25) in exchange of each of the company’s shares. A contingent value right refers to a highly liquid instrument that enables the holders to convert to cash at their discretion. However, Norfolk Southern, after a thorough review of the revised bid, concluded that the CVR will be of no help in protecting the interests of its shareholders as it is likely to “trade at a significant discount”.
NorfolkSouthern still believes that the deal, even after the latest offer made, has very little chances of gaining regulatory approval in a review process that could well extend to two years or more. A long and tedious process would significantly disrupt regular operations at the company. Norfolk Southern, which has constantly been accused by Canadian Pacific, of not wanting to discuss the bid with the latter, stated in its defense that there is no reason on its part for doing so unless the Canadian company finds a way out to address the regulatory risks associated with the offer.
Faced with rejection yet again, Canadian Pacific has now stated that it will evaluate strategic alternatives. Many market watchers believe that the company will not sweeten its offer any further to get a positive response from Norfolk Southern. Regardless of the final outcome, we expect investors to keep an eye on updates pertaining to the issue.
Zacks Rank
Canadian Pacific carries a Zacks Rank #4 (Sell) while Norfolk Southern is a Zacks Rank #3 (Hold) stock. Better-ranked stocks in the broader transportation sector include American Airlines Group AAL and Alaska Air Group ALK. Both the stocks carry a Zacks Rank #2 (Buy).
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