Canadian Pacific Railway Ltd said on Monday that it had ended talks to buy CSX Corp and that the two companies planned no further discussions, sending shares of the No. 3 U.S. railroad operator down more than 3 percent.
A source familiar with the matter told Reuters recently that the railroads had held exploratory talks this month and that they were contemplating whether to take them further.
Neither side had confirmed the talks, initially reported by the Wall Street Journal a week ago.
The No. 2 Canadian railroad operator said on Monday that it had proposed an integrated coast-to-coast combination that would have improved customer service, promoted competition, alleviated congestion and generated significant shareholder value.
Major North American railroads have been struggling to keep up with demand, with record crop harvests, growing oil-by-rail shipments and rising volumes of consumer goods moving by train. However, analysts had said service problems could make the U.S. Surface Transportation Board, which regulates the industry, skeptical about approving any deal.
CP did not disclose the reason for the termination of talks, but hinted strongly that regulatory concerns were a big factor.
"While regulatory concerns appear to be a major deterrent for many railroads considering combinations, CP believes that given the right structure between the right players, and having thoughtful considerations and remedies to address shipper concerns, regulatory approvals are achievable," the company said in its statement.
CP said the industry's problems would only worsen without immediate solutions, such as a customer-friendly, safety-focused rail combination.
Officials at CSX were not immediately available for comment. Its shares were down 3.4 percent at $32.70 in trading before the market opened. (Reporting by Euan Rocha in Toronto and Sneha Banerjee and Rohit T.K. in Bangalore; Editing by Simon Jennings and Lisa Von Ahn)