OREANDA-NEWS. Norfolk Southern's (NS) board of directors unanimously rejected the latest acquisition offer from Canadian Pacific (CP), launching another volley in the Canadian railroad's takeover bid.

The NS board, in a letter to CP chief executive Hunter Harrison and board chairman Andrew Reardon, said the Canadian carrier had made the offer publicly but had not communicated it directly to them. It said the only change to previous terms in the latest offer was a "contingent right value" structure that includes certain financial protections for stockholders.

"The board of Norfolk Southern has unanimously determined that your latest revised proposal is grossly inadequate, creates substantial regulatory risks and uncertainties that are highly unlikely to be overcome, and is not in the best interest of the company and its shareholders," the letter said.

The NS board repeated its suggestion that CP seek a declaratory order from the US Surface Transportation Board that the proposed voting trust structure of the transaction would be approved. The agency would have to review the merger anyway, and has toughened its conditions since it approved major mergers between Union Pacific and Southern Pacific, and Burlington Northern and the Atchison, Topeka and Santa Fe Railway.

Harrison has conducted an aggressive public campaign to acquire the eastern carrier, including repeatedly saying that the NS board will not sit down and talk to him. He has spoken of taking the deal directly to NS stockholders and bypassing the board.

Harrison was installed as head of CP in 2012 by activist investor William Ackman, who serves on CP's board and is chief executive of Pershing Capital Management. Harrison was chief executive at competitor Canadian National from 2003-09.

"You continue to publicly declare that we are not ‘engaging' or ‘meeting' with you," the NS board said. "There is no basis to meet until you both make a compelling offer and address the regulatory issues, which you have the ability to do by seeking a declaratory order."

CP on 15 December made a new offer for NS that essentially provided an insurance policy if the stock price of the newly combined company under-performs. The proposal could be worth up to $25/share to NS stockholders on top of the cash and stock offer, depending on the merged company's stock performance.

The exact value would be determined by the average share price between 20 April and 20 October 2017. If the combined company's share price falls between $150-175/share, shareholders of NS stock would be eligible for the contingent payout to bring the stock value back to $175.