NORFOLK, Va. -- Any lingering doubts about the seriousness of a Canadian railroad's wish to take cover Norfolk Southern Corp. were dashed on Tuesday.
Canadian Pacific Railway Ltd. announced that it had sent a letter to the Norfolk-based railroad, proposing a "business combination that would create a transcontinental railroad with the scale and reach to deliver improved levels of service to customers and communities while enhancing competition and creating significant shareholder value."
The announcement said the proposal "includes a sizable premium in cash and stock offered to NS shareholders," and would lead to a company that could generate faster earnings growth than either railroad could achieve on its own.
In a statement late Tuesday, Norfolk Southern confirmed that it had received "an unsolicited, low-premium, non-binding and highly conditional indication of interest from Canadian Pacific to acquire the company."
The deal would give a Norfolk Southern stockholder $46.72 for every share of stock owned, along with a little more than a third of Canadian Pacific shares per Norfolk Southern share.
Putting the two together would represent an offer of a little more than $90 a share. Because Norfolk Southern stock closed Tuesday at $86.97, the premium offered would be a little less than 10 percent, which is low, according to an industry source.
The deal would have to be approved by the U.S. Surface Transportation Board, as well as Canadian regulators.