Norfolk Southern (NSC - Get Report) on Friday, Dec. 4, formally rejected a $28.4 billion offer from Canadian Pacific Railway (CP - Get Report) , calling the proposal risky and saying a merger is unlikely to gain clearance from regulators.

Calgary, Alberta-based Canadian Pacific put Norfolk Southern in play in November, going public with an offer to create a transcontinental railroad "with the scale and reach to deliver improved levels of service" to customers. The offer was CP's second attempt to consolidate the North American industry in recent memory, coming just a year after the company made an unsuccessful run at Norfolk Southern rival CSX (CSX - Get Report) .

The rejection by Norfolk, Va.-based Norfolk Southern was expected, but Norfolk Southern's language in dismissing the offer seems to indicate that the board is not just seeking out a higher bid. While stating the per-share offer of $46.72 in cash and 0.348 share is "grossly inadequate," Norfolk Southern also said the proposal "creates substantial regulatory risks and uncertainties that are highly unlikely to be overcome."

Norfolk Southern chairman and CEO James Squires in a letter to Canadian Pacific's board said he believes the regulatory review process would take "two years or more," a wait that would lead to significant issues.

"Even in the unlikely event of approval, Norfolk Southern would be in limbo for this extended period, causing loss of momentum and disruption to our business and operations," Squires wrote. "In addition, substantial regulatory conditions would be required to win regulatory approval, adversely affecting the value of the combined company and the stock our shareholders would receive."

Shares of Norfolk Southern opened down about 4.7%, or more than $4, on Friday after the rejection was announced; they regained about 3 percentage points of that loss during trading Friday.

Canadian Pacific offered no immediate comment.

Canadian Pacific CEO Hunter Harrison in interviews discussing the proposal has suggested he could eliminate Norfolk Southern regulatory risk by putting the target into a trust while the Surface Transportation Board reviews the merger, giving Norfolk Southern shareholders a quicker payout.

Squires in his letter addressed the trust idea, noting that such a maneuver would still be subject to a public comment period and a regulatory approval process. While similar trusts have been used in railroad mergers in the past, Norfolk Southern notes that none have been approved since new rules were put in place by the STB in 2001.

"There is no certainty that the STB would approve use of a voting trust," Squires wrote.

Squires also criticized Canadian Pacific for refusing to enter into a confidentiality agreement to hold talks, implying that Norfolk Southern believes the suitor has gone to the press in recent weeks to try to push Norfolk Southern into negotiations.

Canadian Pacific officials have suggested that some Norfolk Southern shareholders would support a deal, but given the extended regulatory review period required, a hostile offer seems unlikely. One wild card could be Bill Ackman, whose Pershing Square Capital Management is a major Canadian Pacific shareholder.

A transport source reached Friday noted that Ackman has shown a willingness to engage in long and uncertain battles, though admitting an effort by Pershing to try to force Norfolk Southern's board to the table "seems unlikely."

Morgan Stanley and Bank of America Merrill Lynch are acting as financial advisers to Norfolk Southern on the bid. A Skadden, Arps, Slate, Meagher & Flom team including partners Stephen Arcano, Richard Grossman and David Goldschmidt joined with attorneys at Morrison & Foerster and Hunton & Williams to provide legal counsel.