This week Canadian Pacific (CP, Financial) announced it would no longer be continuing its acquisition bid for Norfolk Southern (NSC, Financial). After repeated refutes from Norfolk Southern, Canadian Pacific was preparing to bring the acquisition proposal to Norfolk Southern’s shareholders.
A number of factors influenced Canadian Pacific’s decision to withdraw the takeover plan, however, one of the main influencing factors was Norfolk Southern’s repeatedly adamant view that its business strategy was successfully leading the company to greater shareholder value on its own. Norfolk Southern’s CEO James Squires, who was appointed in June 2015, has been implementing a restructuring plan for the company. The plan includes substantial revenue initiatives specifically focused on intermodal and merchandising sales. In terms of cost structures, the firm also has significant improvement plans in place for pricing discipline and increased operating efficiency. These plans appear to be winning the votes of shareholders, though the stock continues to trade volatilely, down 4.1% for the year.
In addition to Norfolk Southern’s business strategy the firm also repeatedly reported regulatory issues and a long-term merger plan that would divert Norfolk Southern from its business focus. Regulatory issues, competitive concerns and a complicated contingent value proposal appear to be the overall conceding factors that led to Canadian Pacific’s final takeover bid withdrawal.
With the withdrawn plan, it appears the railroad industry will not see consolidation in the near-term, which could produce comprehensive efficiencies in transportation infrastructure if appropriately enacted. Yet, while the merger plan is no longer in effect, Canadian Pacific still continues to remain in the spotlight as a thriving company under the leadership of industry veteran Hunter Harrison.
Canadian Pacific has managed to report a 17.4% gain in its stock price year-to-date and over the last three years has gained 20.96%. Leading portfolio manager and board affiliate, Bill Ackman (Trades, Portfolio), has been an active participant in the railroad merger discussions, and Ackman’s Pershing Square has benefited greatly from the strong performance of Canadian Pacific. Ackman holds 9.1% of the outstanding shares of the company and Canadian Pacific has been one of Pershing Square’s top performers in recent months. Overall, while the merger plans are no longer in place, Canadian Pacific and Pershing Square investors are both positioned well and can expect to see continued gains.
Disclosure: I do not currently own any shares of Canadian Pacific or Norfolk Southern.
