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Canadian Pacific revises takeover offer for Norfolk Southern

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Associated Press – OMAHA, Neb. (AP) - Canadian Pacific has revised its takeover bid for Norfolk Southern, and is trying to make a strong case for why combining the two major railroads makes sense.

The new offer includes $32.86 cash and 0.451 shares in the combined company that would own both railroads.

That includes less cash than the initial offer of $46.72 per share, but more equity than last month's offer of 0.348 shares in the combined company.

The two railroads don't agree on how to value the shares in the new company, and Norfolk Southern rejected the new offer even before Canadian Pacific executives held a conference call outlining the details.

The new bid also promises that Norfolk Southern shareholders could receive the cash next spring before regulators complete their review.

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Here is the statement from Norfolk Southern: 

Norfolk Southern Corporation (NYSE: NSC) ("the Company") today confirmed that it has received a revised, reduced proposal from Canadian Pacific (TSX:CP) (NYSE:CP).

Norfolk Southern noted that Canadian Pacific's revised, reduced proposal provides for a per share consideration of $32.86 in cash and a fixed exchange ratio of 0.451 shares in a new company that would own Canadian Pacific and Norfolk Southern, and is valued at $91.62 based on Canadian Pacific's closing price on December 7, 2015.  The consideration offered in this revised proposal is less than the prior proposal, which the Norfolk Southern board unanimously determined was 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.

On November 17, 2015, Canadian Pacific made an unsolicited proposal to acquire all the outstanding common shares of Norfolk Southern 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. The total consideration of the initial proposal is valued at $92.06 based on Canadian Pacific's closing price on December 7, 2015. Following careful consideration with the assistance of its independent financial and legal advisors, the Norfolk Southern board unanimously rejected the prior proposal.

"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," said Chairman, President and CEO James A. Squires.  "In addition to being grossly inadequate, the proposal is based on a voting trust structure that we reviewed and do not believe would be approved by the STB. Yesterday we released a white paper by two former STB chairmen who believe that the STB would not approve any voting trust structure because there is no basis to determine that it would be in the public interest."

On December 7, 2015 Norfolk Southern released a white paper by former Surface Transportation Board ("STB") commissioners Francis Mulvey and Charles Nottingham in which they carefully reviewed voting trust issues and the original merger transaction proposed by Canadian Pacific. The former commissioners concluded that, "As simple background, rail carriers cannot assume control of another carrier without prior STB approval.  The STB's approval process can last between 19 and 22 months.  Current STB regulations, adopted in 2001, set a high bar for approval of a proposed major merger and related voting trust based on an untested public interest standard.  In our expert opinions, the STB is not likely to approve CP's proposed voting trust or the CP+NS merger."

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.

Further details on this proposal here.