Norfolk Southern rejects CP Rail's merger proposal

A proposal from Canada's second-largest railway to merge with Norfolk Southern has been rejected, with the U.S. rail company calling the deal "grossly inadequate."

The Virginia-based railway says the plan floated by Canadian Pacific Railway would face significant regulatory hurdles and uncertainties that are unlikely to succeed.

Calgary-based CP Rail's cash-and-share offer is valued at $28.4 billion US.

• CP Railpitches merger with Norfolk Southern rail line

The deal would have expanded Canadian Pacific's already vast transcontinental reach and created the largest railroad in North America.

In particular, CP is aiming to bypass a congested transportation hub in Chicago and increase its presence in the eastern United States, where Norfolk Southern has its base.

But Norfolk Southern's chairman, president and CEO James Squires says his shareholders would get more value if they reject CP's proposal.

"Norfolk Southern has made growth investments and we expect to realize the benefits of these investments in the years ahead, especially as our intermodal volumes continue to build," Squires said in a statement Friday.

"We believe that Canadian Pacific's short-term, cut-to-the-bone strategy could cause Norfolk Southern to lose substantial revenues from our service-sensitive customer base. We also believe the proposed transaction risks harm to vital transportation infrastructure and the communities we serve."

Canadian Pacific CEO Hunter Harrison told an industry conference on Wednesday that CP has received positive feedback from shareholders and shippers since the idea was announced on Nov. 17

Harrison an American by birth has a reputation as an efficient railway operator, based on his experience in the U.S. and as a former CEO of Montreal-based Canadian National and current CEO of CP.

CP was still reviewing Norfolk Southern's statements Friday morning, spokesman Marty Cej said from Calgary.