CSX Corp approached over merger: Reports

Canadian Pacific Railway Ltd (CP) had approached rival railroad operator CSX Corp in an attempt to merge the two North American railroad operators to create a transcontinental carrier worth over $60 billion, The Wall Street Journal reported.

The offer, which came in the past week was rejected, the newspaper said yesterday, citing people briefed on the matter. It added that it was not clear whether Canadian Pacific had shelved the plan.

According to Calgary-based Canadian Pacific, it was interested in acquisitions as rail traffic surged on the back of the North American energy boom.

CP chief executive Hunter Harrison said on a call with analysts on 1 October that as he had said before, one had to have somebody to dance with and he did not know anybody that wanted to dance with now.

Harrison, a former CEO of Canadian National Railway (CN) , joined Canadian Pacific in 2012 after he was hand-picked by activist investor William Ackman, whose hedge fund Pershing Square Capital Management owned a large stake in the company.

Harrison was at CN when it tried to merge with Burlington National, now owned by Warren Buffett, but the deal, the last attempted merger between two big "tier 1" railways - was scuttled in 2000 by the US Surface Transportation Board over competition concerns.

According to independent railroad analyst Anthony Hatch, any attempt to join CP and Jackson, Florida-based CSX, was also likely to face intense regulatory scrutiny.

He said if it were approved, it would be "with such strings attached that they would feel like anchor chains."

Meanwhile, Bloomberg reported it was not clear whether Calgary-based Canadian Pacific would return with another overture, citing people, who asked not to be named because the matter is private. The two companies together would have a market value of about $62.5 billion, data compiled by Bloomberg showed.

A combination would create a carrier with transcontinental reach, connecting CSX's network in the eastern US with a Canadian Pacific system spanning the width of Canada. Even with the backing of CSX, a deal would face regulatory scrutiny.

Pressure from US officials forced Burlington Northern Santa Fe to drop a takeover of Canadian National Railway Co in 2000.

According to Keith Schoonmaker, a Chicago-based analyst with Morningstar Inc, the reason CSX was being targeted was that the valuation was more attractive than that of other railroads. He added, CSX had really been punished by the market because of its very high exposure to coal.