Merger talks with CSX are over, CP says

Canadian Pacific today announced that exploratory merger talks with CSX Corp. have ended and no further discussions are planned.

A week ago, CP had proposed a merger that CSX rejected — according to various media reports — but both Class Is declined to comment on the proposal.

CP proposed an integrated coast-to-coast combination that would improve customer service, promote competition, alleviate congestion in North America — specifically, the key Chicago gateway — and generate significant shareholder value, CP officials said in a press release issued today.

"Such a business combination would offer creative alternatives for shippers, greater fluidity, increased capacity and improved efficiency industry-wide," they said.

Although regulatory concerns appear to be a major deterrent for many railroads considering combinations, CP officials believe that, given the right structure between the right players, and having thoughtful considerations and remedies to address shipper concerns, regulatory approvals are achievable.

"The North American rail industry is confronted today with the challenges of moving more freight than ever and the prospect of moving even more as oil production, crop yields and consumer demand grow alongside the economy. CP is convinced that the significant problems that beset the industry now will only worsen over time if solutions aren't put in place immediately," CP officials said. "A pro-competition, customer-friendly, safety-focused railway combination is one such solution that could not be ignored on its merits by regulators."

CP Chief Executive Officer E. Hunter Harrison will discuss the topic of railroad mergers and acquisitions, and the need for a comprehensive North American transportation policy during a conference call to be held tomorrow.

Although he didn't directly address the proposed CP-CSX merger, CSX Chairman, President and CEO Michael Ward last week said railroad mergers could worsen rail congestion and traffic problems, and that regulators would be concerned about a merger's effect on service levels.

U.S. Sen. Amy Klobuchar (D-Minn.) last week sent a letter to Surface Transportation Board Chairman Dan Elliott and U.S. Attorney General Eric Holder to stress her concerns about a CP/CSX merger. It's troubling that railroads' current antitrust exemption prevents the U.S. Department of Justice from blocking mergers even if the department determines that a merger would harm competition, Klobuchar said in a press release.

"Given recent concerns about shipping delays and ongoing concerns about anticompetitive conduct in the railroad industry, any further consolidation would prompt significant concern," she said.