[110416.EN.BIZ] US Army Warns Against Canadian Pacific Takeover of Norfolk Southern

The US Army said a Canadian Pacific Railway (CP) takeover of Norfolk Southern Corp (NS) has the potential to harm national defence, but cannot say how, Bloomberg News reports.

"It is too early to determine whether either a the merger itself, or a downstream merger involving other major railroads, would degrade national defence," said the army's letter to the US Surface Transportation Board (STB).

"However, the potential certainly exists for either the CP-NS merger or a downstream merger to adversely affect national defence," said the letter signed by David Dorfman, a senior civil engineer for the railroads for National Defence Programme.

Addressing the STB regulator, Mr Dorfman said the army opposed CP's plan to have its CEO Hunter Harrison step down and become the head of NS as part of a voting trust structure before the regulator's final approval of a merger.

CP had asked the STB to rule by May 6 if its voting-trust plan is permissible.

"We are troubled by the possibility that Mr. Harrison could become a senior executive at Norfolk Southern in advance of the board ruling in favour of common control/merger between Canadian Pacific and Norfolk Southern," according to a letter from the Army.

"If Mr Harrison is a senior executive at NS he may be placed in a position where he must make business decisions with potentially competing interests."

Canadian Pacific wants to acquire Norfolk Southern, the second biggest eastern US railway, to create a coast-to-coast railroad that it says will benefit shippers by reducing costs and congestion.

Norfolk Southern has rebuffed three offers, including one in December that valued the company at US$27 billion, as "grossly inadequate," while expressing concerns the regulator would reject a tie-up.

The Surface Transportation Board will accept comments on the plan until Friday and Canadian Pacific will have until April 13 to reply to those.

"We look forward to providing a response at that time," said CP spokesman Martin Cej.

Billionaire investor Bill Ackman, whose Pershing Square Capital Management is the second biggest shareholder of Canadian Pacific, with a 9.1 per cent stake, has advocated for the merger during conference calls with analysts and investors.

"There are 36,000 miles of rail lines that are designated to move defence cargo throughout the US "in peace and war," said the army letter.

The Army joins lawmakers, including US House Transportation Committee Chairman Bill Shuster, and shippers such as United Parcel Service and FedEx that have raised concern about the merger.

Canadian Pacific has received support for its plans from dozens of shippers including the Canadian unit of Kia Motors.

Source : HKSG.