(Reuters) - Canadian Pacific Railway (TO:CP) on Tuesday revised its bid to buy U.S. railroad operator Norfolk Southern Corp (N:NSC), less than a week after its prior $28.4 billion proposal was rejected - and the new offer was promptly rejected again.
Calgary-based CP said it was now offering $32.86 in cash and 0.451 of a share in a new holding company that would own both Norfolk Southern and Canadian Pacific. To alleviate regulatory concerns, CP said it was prepared to close the transaction using a voting trust.
The proposal was flatly rejected by Norfolk however, which said it had reviewed a voting trust structure and it did not see this winning approval from regulators, who typically take close to two years to review any rail mergers in the United States.
"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," Norfolk Southern Chief Executive James Squires said in a statement on Tuesday.
Norfolk Southern had said CP's previous offer of $46.72 in cash and 0.348 of its own shares was not only inadequate but would likely be rejected by antitrust regulators.
U.S. regulators have been skeptical about North American railway mergers for years. Canadian National Railway's (TO:CNR) bid to buy Burlington Northern Santa Fe was blocked by antitrust authorities in 1999-2000.
The Wall Street Journal reported on Monday that CP would revise its bid, and said that the new holding company would run the two rail companies independently until the U.S. Surface Transportation Board ruled on the merger.
The holding company would be listed both on the New York and Toronto stock exchanges, CP said.
To ensure against any unlawful control violation, CP said an independent trustee would be appointed to oversee either CP, or Norfolk while in trust. It also said that while in trust, its CEO Hunter Harrison would sever all ties with CP and become CEO of Norfolk.
Harrison has built a reputation as a turnaround expert in the rail industry, and has dramatically improved CP's metrics since taking the helm of the company.
CP said even if regulators ultimately decide that a merger will not be permitted, operational improvements will by then have materially increased the value of Norfolk benefiting all shareholders.