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Canadian Pacific drops efforts to merge with Norfolk Southern

Canadian Pacific announced today that it will end its attempt to merge with Norfolk Southern Corp., and will withdraw a resolution calling for NS shareholders to vote in favor of negotiations between the companies.

CP plans "no further financial offers or overtures to meet with the NS board" at this time, according to a CP press release.

"We have long recognized that consolidation is necessary for the North American rail industry to meet the demands of a growing economy, but with no clear path to a friendly merger at this time, we will turn all of our focus and energy to serving our customers and creating long term value for CP shareholders," said CP Chief Executive Officer E. Hunter Harrison.

Since late last year, CP executives have been pushing for a merger with NS, arguing that the creation of a North American transcontinental railroad would enhance competition, ease freight congestion and improve service to shippers.

NS rejected all three of CP's financial offers, however. Earlier this month, NS CEO James Squires encouraged employee shareholders to oppose a CP resolution calling for merger discussions between the companies' boards. The resolution was scheduled to be considered at NS' annual meeting next month.

In response to CP's announcement this morning, NS officials said the company is committed to pursuing its five-year strategic plan to streamline operations, cut expenses and maintain "superior" customer service.

"The Norfolk Southern team has made significant progress and is on track to achieve annual productivity savings of more than $650 million and an operating ratio below 65 percent by 2020," the statement read. "We are confident the continued execution of our plan will deliver superior value to all of the company's stakeholders by best positioning Norfolk Southern to succeed."

The NS statement also thanked the company's shareholders.

"We thank our shareholders for their input and support throughout this process and our employees for their hard work and dedication to strengthening Norfolk Southern as a critical component of the nation's transportation infrastructure."

CP's announcement follows recent statements by U.S. government officials who expressed opposition or concern about the proposed merger. The most recent statement came from the U.S. Department of Justice (USDOJ), which late last week filed a reply in opposition to CP's petition for a declaratory order on its proposal for the creation of a voting trust pending the Surface Transportation Board's review of the merger.

"Canadian Pacific's voting trust proposal would compromise Norfolk Southern's independence and effectively combine the two railroads prior to completion of the STB's  review," said Assistant Attorney General Bill Baer of the Justice Department's Antitrust Division in a press release. "That makes no sense. We urge the STB to preserve its ability to review the impact of the proposal on competition and consumers before Canadian Pacific starts scrambling the eggs."

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