Canadian Pacific Revises Offer For Norfolk Southern

(RTTNews) - Canadian Pacific (CP,CP.TO) presented a revised, enhanced offer for Norfolk Southern Corp. (NSC) that will give Norfolk Southern Shareholders the opportunity to receive for each share of Norfolk Southern US$32.86 in cash, 0.451 shares of stock in the combined CP-Norfolk Southern company, and 0.451 of a contingent value right, which will have a maximum value of US$25.

CP said it is committed to this transaction, which would create a true coast-to-coast railway that enhances competition and generates significant shareholder value. To that end, CP has added contingent value rights (CVR) to the offer, which increase the overall value of the offer and also protect the value to NS shareholders going forward.

A CVR is a highly liquid instrument that gives holders the ability to convert to cash at their discretion. This particular CVR protects the holder's value in the event that the value of the stock in a combined CP-Norfolk Southern is below US$175 a share at the date of payment. Each CVR would entitle the holder to receive a cash payment from CP equal to the difference between the CP-Norfolk Southern share price during the relevant measurement period and US$175 per share (with no payment in the event CP-Norfolk Southern share price is above US$175), up to a maximum value of US$25 a share.

Under the CP proposal, the measurement period would begin on or about April 20, 2017 and would end on or about October 20, 2017 with shareholders receiving their cash payment on or about October 25, 2017. In the event of a full CVR payout, the total cash payment would represent an additional US$3.4 billion and CP is confident it would maintain an investment grade rating.

In a separate press release, Norfolk Southern confirmed that its board will carefully consider the publicly disclosed, revised proposal from Canadian Pacific with the assistance of its financial, legal and regulatory advisors.

Norfolk Southern noted that the latest revised proposal provides for a Contingent Value Right. Other than the addition of a CVR, the latest revised proposal did not change any of the terms of the prior, reduced proposal dated December 7, 2015 that was previously unanimously rejected by the Norfolk Southern board, and did not address the substantial regulatory risks and uncertainties inherent in the proposed combination.

As Norfolk Southern previously stated, if Canadian Pacific is confident that its proposed voting trust structure works, Canadian Pacific can seek a declaratory order to that effect from the STB now. The STB has clear, statutorily-established authority to issue declaratory orders to remove uncertainty, and there is precedent for it doing so in the voting trust context.