Norfolk Southern (NSC) Possible Takeover Target for Canadian Pacific

Shares of Norfolk Southern Corporation (NSC) were up +0.28 or +0.32 percent to $88.90 in Tuesday’s premarket after reports surfaced yesterday that the company had held early stage talks with Canadian Pacific Railway Limited (CP) on a possible takeover of Norfolk Southern by CP Rail. Norfolk Southern stock closed up +8.75 or +10.96 percent in yesterday’s regular trading session.

Norfolk, Virginia based Norfolk Southern Corporation is the holding company for the Norfolk Southern Railway, the second largest railway in the eastern United States.
The Railway was completed in 1894 and was known as the Southern Railway. The company operates 20,000 route miles in 22 United States and the District of Columbia. Norfolk Southern offers service to every major eastern seaport including nine lake ports and 10 river ports with the most extensive intermodal railway network in the Eastern United States.

Calgary, Alberta based Canadian Pacific Railway Limited is the operator of the Canadian Pacific Railway, which was founded in 1881 and is the second largest railroad in Canada. The company operates over 14,000 miles of track in Canada and the United States, from Vancouver to Montreal and north as far as Edmonton. U.S. cities in which the company operates include Detroit, Chicago, New York City, Minneapolis and Milwaukee.

According to sources familiar with the matter, which have asked not to be identified due to the private nature of the discussions; Canadian Pacific has held early stage merger talks with Norfolk Southern. The talks are preliminary and may not lead to a deal, according to the sources. Spokespeople for Canadian Pacific and Norfolk Southern declined to comment on the matter.

While neither company has commented, Canadian Pacific’s Chief Executive Officer Hunter Harrison said in an interview after the company announced third quarter earnings on October 20th that, “We still think that consolidation in the industry — and I’ve said this for years — is the way to go and it will solve a lot of problems and take a lot of costs out and it will work for a lot of people. I still think it’s going to happen. It’s not a case of if; it’s when. But I don’t know what other carriers are doing right now about that and I can tell you that you can’t dance with yourself”.

Last October, Canadian Pacific ended merger talks with CSX Corp. (CSX), a rival of Norfolk Southern. Merging with Norfolk Southern would offer Canadian Pacific the chance of operating a transcontinental carrier. According to analysts, Norfolk Southern is currently valued at $24 billion, while Canadian Pacific is valued at over $20 billion.

Despite a lack of comments on the matter from either company, the stocks of both companies were up sharply yesterday and were holding steady in this morning’s premarket. The consolidation of the industry seems the most likely step to stem the downward spiral the rails have taken over the last few years.

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Published on Nov 10, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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