NorfolkSouthern_train_webLast week, US rail operator Norfolk Southern announced that it had rejected an unsolicited takeover bid by Canadian Pacific, which would create a transcontinental rail company.

Canadian Pacific revised its offer this week, but Norfolk Southern has said that the latest offer is a ‘reduced proposal’.

For the initial bid, Canadian Pacific offered cash and stock worth $37.8 billion – a deal that would have been the second-largest merger in the history of global transportation.

Norfolk Southern rejected the offer based on the fact that it said it could boost its profitability independently, and that the deal would probably not win regulatory approval.

James Squires, Norfolk Southern CEO said, “There is a high probability that after years of disruption and expense, the proposed combination would be rejected by the Surface Transportation Board. Even if the proposed combination were ultimately to be cleared, it would be subject to a wide range of onerous conditions that would reduce the value of the stock consideration that has been proposed.”

Norfolk Southern has also rejected a confidentiality agreement to discuss the proposed bid privately.

Coming back a second time

This week, Canadian Pacific came back with a revised offer, but the two companies are arguing over whether the offer is better or worse than the original.

The new offer would see Canadian Pacific paying $32.86 in cash, and allocated 0.451 shares in the combined company, for every share of Norfolk Southern stock. The original offer was for $46.72 in cash, and 0.348 shares in the new company.

There is also concern as to whether the takeover proposal is legal. In a statement, Squires said, “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.”

It is possible that Canadian Pacific will now attempt to pursue a proxy fight to force Norfolk Southern into a deal.