Utilities relieved as Canadian Pacific terminates rail merger that sparked coal shipping concerns

Dive Brief:

Canadian Pacific Railway Ltd. has ended its bid to merge with Norfolk Southern, a move CP CEO Hunter Harrison said would have created the first end-to-end railroad, EnergyWire reports.
Instead, with no clear way forward for a "friendly merger" and coal shippers concerned about the potential for rising costs, Harrison said the rail line would "turn all of our focus and energy to serving our customers."
Critics worried merger costs could be used to pay shareholders a premium on their stock, and there were growing concerns that Harrison would take over at Norfolk Southern before the U.S. Surface Transportation Board could fully review the deal.

Dive Insight:

Harrison's view for the combined railroad included a true end-to-end system that would connect coal mines with generators, but critics of the deal sounded enough alarms that this week the company ended the merger proposal.

"We have long recognized that consolidation is necessary for the North American rail industry to meet the demands of a growing economy, but with no clear path to a friendly merger at this time, we will turn all of our focus and energy to serving our customers and creating long term value for CP shareholders," CP CEO E. Hunter Harrison said in a statement.

EnergyWire reports shippers, including FirstEnergy Corp., expressed concern over the deal and its potential to drive up costs as well as cause service problems transporting the coal for the power sector.

The U.S. Justice Department revealed its concerns as well, over a plan to install Harrison as CEO at Norfolk Southern while keeping his stock in a trust.

"Canadian Pacific's voting trust proposal would compromise Norfolk Southern's independence and effectively combine the two railroads prior to completion of the STB's review," Assistant Attorney General Bill Baer in the Antitrust Division said last week. "That makes no sense."

CP's move includes the withdrawal of a resolution asking Norfolk Southern shareholders to vote in favor of good-faith negotiations between the two companies. "No further financial offers or overtures to meet with the NS board of directors are planned at this time," the company said.

CP said its combined railway would have enhanced competition, eased freight congestion, improved service to shippers, supported the economy and generated shareholder value for both companies.