- Associated Press - Tuesday, February 16, 2016

OMAHA, Neb. (AP) - Canadian Pacific plans to ask federal regulators for preliminary approval of the structure of its proposed takeover of Norfolk Southern railroad.

CP CEO Hunter Harrison said Tuesday his railroad is taking this step because shareholders of both railroads recommended it. The move may put additional pressure on Norfolk Southern to engage in talks ahead of a shareholder vote this spring that Canadian Pacific requested.

“We still think this action is unnecessary, however, we believe listening to the shareholders - the owners of our respective companies - is important,” Harrison said

Part of the reason why Norfolk Southern has rejected all of Canadian Pacific’s offers so far is because it questions whether the U.S. Surface Transportation Board would approve such a deal or would impose onerous conditions on the railroads. No major rail mergers have been approved since regulators imposed tough rules on them in 2001.

Canadian Pacific has proposed setting up a voting trust and installing Harrison as CEO of Norfolk Southern while the deal is reviewed.

Norfolk Southern believes that would violate a prohibition against an acquiring railroad taking control of its target before a deal is approved, so it has recommended that Canadian Pacific seek this preliminary approval of the structure. CP officials have said they don’t see a problem with the proposed trust structure.

“We are skeptical that the STB will give a definitive ruling, especially when NS will not even sit down with us, but we are willing to go the extra mile if that is what it takes to get NS to the table,” Harrison said.

Norfolk Southern praised the move, but didn’t say whether it would help Canadian Pacific apply for the ruling.

“Canadian Pacific has acknowledged that there is a path to determine the validity of its proposed voting trust structure by seeking a declaratory order from the STB,” the railroad said.

Norfolk Southern has also said it believes Canadian Pacific’s offers remained “grossly inadequate” even as they approached $30 billion.

Canadian Pacific plans to ask Norfolk Southern shareholders at their annual meeting to vote on whether they want the two railroads to discuss a possible merger. But the nonbinding vote won’t include details of a specific proposal.

Canadian Pacific officials have said they believe combining the two railroads would create a more efficient operation that could move more freight without adding tracks. CP has also said it could cut roughly $1.8 billion in annual costs from the combined railroad.

Norfolk Southern has said those cuts would likely jeopardize the customer service and performance that customers expect. It is pursuing its own plan to cut $130 million in costs this year and create more than $650 million in annual cost savings by 2020 while improving service.

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