CP Rail says Norfolk Southern merger required to support economic growth

MONTREAL – Canadian Pacific Railway has issued a report saying railway mergers are required to support growth in the North American economy.

Changing the status quo is necessary to increase capacity to meet increased demand, the Calgary-based railway argued in a report released Tuesday as it continues to pursue a takeover of Norfolk Southern Railway.

“The status quo is not an option for North American rail,” it wrote. “Change is necessary to support continued economic growth and that change needs to happen now.”

CP Rail (TSX:CP) said industry consolidation can improve the efficiency of the existing network and increase capacity without adding new tracks and terminals that are often resisted by local communities.

The proposed merger with Norfolk Southern would do that while relieving congestion in Chicago, a major hub that carries about 25 per cent of all rail traffic.

CP Rail outlined the benefits of the merger and rejected suggestions by merger opponents that the combination with Norfolk Southern would spur additional takeover bids.

Walter Spracklin of RBC Capital Markets said it’s unlikely the white paper will convince Norfolk Southern’s board to change its opposition.

“Ultimately, we believe that this will remain a PR battle in advance of Norfolk Southern’s annual general meeting this year,” he wrote in a report.

The proposed merger has incited opposition from government officials, shippers and unions. Several letters voicing opposition to the merger and a response by the U.S. railway regulator has been filed on the Surface Transportation Board’s website.