Tuesday, January 05, 2016

Norfolk Southern Board of Directors Unanimously Rejects Publicly Disclosed, Revised Proposal from Canadian Pacific

 Received via e-mail

 Norfolk Southern Corporation (NYSE: NSC) (“the Company”) today announced that its board of directors has unanimously rejected Canadian Pacific’s (TSX:CP) (NYSE:CP) Dec. 16, 2015, publicly disclosed, revised proposal to acquire the Company for $32.86 in cash, a fixed exchange ratio of 0.451 shares in a new company that would own Canadian Pacific and Norfolk Southern, and 0.451 of a Contingent Value Right. 

The following is the text of the letter that was sent on Dec. 23, 2015, to Canadian Pacific’s Chief Executive Officer, E. Hunter Harrison, and its Chairman of the Board, Andrew F. Reardon.

December 23, 2015

Mr. E. Hunter Harrison                                                                                   Mr. Andrew F. Reardon
Chief Executive Officer                                                                                  Chairman of the Board
Canadian Pacific Railway                                                                               Canadian Pacific Railway
7550 Ogden Dale Road S.E.
Calgary, AB T2C 4X9

Dear Mr. Reardon and Mr. Harrison:

The board of directors of Norfolk Southern has carefully reviewed your latest revised proposal, which you publicly disclosed on December 16, but have not otherwise communicated to us. That review was conducted with the assistance of our independent financial, legal and regulatory advisors. In its review, the board noted that the only change from your prior proposal was to include a Contingent Value Right (“CVR”).

The board of Norfolk Southern has unanimously determined that your latest revised proposal is grossly inadequate, creates substantial regulatory risks and uncertainties that are highly unlikely to be overcome, and is not in the best interest of the Company and its shareholders. This would be the case even if the CVR had a value at the high end of the range suggested in your publicly filed presentation. In fact, our financial advisors believe that the CVR would trade at a significant discount.

In addition, you have not addressed the significant regulatory issues that we have previously identified. We do not believe that your voting trust structure would be approved. As you know, our view reflects careful analysis by our regulatory experts and is fully supported by two former Surface Transportation Board (“STB”) Commissioners. You have a path to seek a declaratory order from the STB as to whether the voting trust structure that you proposed could work. The STB has clear, statutorily-established authority to issue declaratory orders to remove uncertainty, and there is precedent for it in the voting trust context. No involvement by Norfolk Southern is required for you to seek a declaratory order regarding the legality of putting Canadian Pacific into a voting trust under your proposed structure. Your decision not to seek an order shows a lack of confidence in your proposed structure.

You continue to publicly declare that we are not “engaging” or “meeting” with you. There is no basis to meet until you both make a compelling offer and address the regulatory issues, which you have the ability to do by seeking a declaratory order. We also note your repeated public statements that you are not willing to increase your offer regardless of whether we were to meet.

The Norfolk Southern board of directors is focused on protecting the interests of our shareholders. It would be inconsistent with the duties of the board to pursue a risky and uncertain offer that substantially undervalues the Company. Accordingly, the board of directors has unanimously rejected your latest revised proposal.


/S/                                                                                                                          /S/

Jim Squires                                                                                                         Steven Leer
Chairman, President and                                                                              Lead Director
Chief Executive Officer

Morgan Stanley & Co. LLC and Bank of America Merrill Lynch are acting as financial advisors to Norfolk Southern Corporation and Skadden, Arps, Slate, Meagher & Flom LLP, Hunton & Williams LLP and Morrison & Foerster LLP are acting as legal advisors.