OREANDA-NEWS. Canadian Pacific (CP) today defended its plan to buy Norfolk Southern (NS), disputing the eastern railroad's contention that the deal will not pass regulatory muster.

CP issued a white paper in response to one issued last week by NS that said the Surface Transportation Board (STB) is unlikely to approve the transaction, in part because of the structure of a voting trust.

CP said the NS white paper, which was written by two former STB members, "is based largely on inaccurate assumptions, rumor, speculation and conclusions that are unsupported by fact or law."

CP offered NS $32.86/share in cash and 0.451 shares in the proposed $28bn acquisition. A previous offer included $46.72/share in cash and 0.348 shares of the new company.

The added stock component allows NS shareholders to hold 47pc ownership in the combined company, up from 41pc in the initial proposal.

CP chief executive Hunter Harrison said yesterday that it is time to take the offer directly to NS shareholders, shutting out the NS board. He also discussed a possible "contingent value rights" structure in which NS shareholders would receive added benefit if certain events occur, such as if the stock price drops. This would function as a guarantee for NS shareholders' stock position.

CP in the white paper defended the proposed voting trust, saying it is a good way to insulate a carrier from unlawful control as regulatory approval is sought. Voting trusts are "a common feature of rail transactions," it said.

CP said that while Harrison would become chief executive of NS, the two carriers would operate independently, addressing concerns about unlawful control through management changes.

CP also said that it is confident the STB would not deny the merger because it could trigger other deals. NS said potential "domino effects" including the triggering of additional mergers between Class I railroads would be considered if the board thought that outcome was likely.

Nine Democratic members of Congress, including senator Richard Durbin (Illinois), said they have concerns about the proposed merger in a letter yesterday to the STB.

"We urge you to carefully review any plans submitted to the STB, and consider the potential negative impact of the proposal with respect to building a more-efficient freight network in Chicago — and comprehensively examine the economic effects of such a consolidation on local industries and jobs in the Chicago region," the letter said.