Canadian Pacific Railway (CP - Get Report) and Norfolk Southern (NSC - Get Report) traded fire Wednesday in their ongoing hostile takeover battle, with Canadian Pacific offering a sweetener designed to bring Norfolk Southern to the table and Norfolk Southern challenging Canadian Pacific to prove regulatory hurdles to a combination can be overcome.
The two sides have exchanged press releases and white papers in the weeks since Calgary-based Canadian Pacific went public with a $28 billion bid for Norfolk Southern, with both companies trying to persuade Norfolk Southern holders in a process Canadian Pacific CEO Hunter Harrison called "a street fight" during a Wednesday investor call.
The board of the Norfolk, Va.-based Norfolk Southern continues to insist the offer undervalues the railroad, and claims Canadian Pacific is greatly underestimating the regulatory issues that such a deal would create.
Canadian Pacific has countered with a plan to place one of the railroads in a voting trust while Surface Transportation Board approval is sought, a strategy that is designed to shift regulatory risk away from Norfolk Southern holders and provide shareholders of the target with a quicker payout.
Norfolk Southern argues, with support from two former STB commissioners, that Canadian Pacific's trust plan would not pass muster. On Wednesday the company called on Canadian Pacific to go directly to the regulator with its plan if it is so certain the strategy will be approved.
"If Canadian Pacific is confident that its proposed voting trust structure would satisfy the twin legal tests-avoiding premature control and furthering the public interest-Canadian Pacific can seek a declaratory order to that effect from the STB," the company said in a release.
Canadian Pacific is also attempting to sweeten its cash and stock offer. The company added on Wednesday a contingent value right that could add as much as $3.4 billion, or $25 per share, to its cash and stock offer should shares of the combined company trade below $175 apiece in October 2017. Canadian Pacific claims its total offer could be worth up to $40 billion, while Norfolk Southern argues that the previous bid was worth about $27 billion based on current share prices.
Norfolk Southern is currently valued by the market at about $26.5 billion. The company had nearly $10 billion in debt on its balance sheet as of Sept. 30.
It is unclear what will break the standstill. Canadian Pacific abandoned a bid for Norfolk rival CSX (CSX - Get Report) about a year ago after failing to win traction with the company or its shareholders, but so far shows no sign that it is considering walking away from its Norfolk Southern offer.
Canadian Pacific appears to be hoping Norfolk Southern shareholders will force the railroad to the table, with Canadian Pacific shareholder Bill Ackman calling Norfolk Southern "an ideal activist situation." However, the deadline to nominate directors to the Norfolk Southern board ahead of the company's 2016 annual meeting appears to have passed in late November. Canadian Pacific and any Norfolk Southern shareholders sympathetic to this bid are in for a long wait.
Ackman, who runs activist investment firm Pershing Square Capital Management, told investors on Wednesday that should Canadian Pacific fail to win Norfolk Southern, it would consider other merger options.