Norfolk Southern Rejects Revised Canadian Pacific Bid

Norfolk Southern Co. formally rejected Canadian Pacific Railway Ltd. for a second time, calling the company's second bid also a "grossly inadequate" proposal.

Canadian Pacific proposed to buy Norfolk Southern for about $30 billion, using a complex and scarcely-used deal structure called a "voting trust." Canadian Pacific said the interim structure allows the two companies to remain technically independent, as required by law until regulatory approval, but puts cash in the hands of Norfolk Southern shareholders earlier.

Canadian Pacific estimated shareholders could receive their payout by May 2016, compared with the possible Dec. 2017 closing date under the deal review process.

Both the voting trust and the final deal must be approved by the U.S. railroad regulator, the Surface Transportation Board. The board revised its rules in 2001 to require railroad mergers to serve the "public interest." This higher standard hasn't yet been tested in a railroad merger.

In a letter to Canadian Pacific, Norfolk said it was highly unlikely that the structure would be approved by regulators. Norfolk said the "revised, reduced proposal" offers "less overall value and cash."

Canadian Pacific said it was reviewing Norfolk Southern's response.

In a more than two-hour conference call hosted earlier this month to explain the proposal, Canadian Pacific said much of the deal's potential benefits come from installing its current chief executive, longtime railroader Hunter Harrison, at the helm of Norfolk Southern.

Norfolk Southern rebuffed Canadian Pacific's previous $28 billion merger offer saying in early December that such a deal would create a "smaller, geographically inferior" railroad.

Write to Austen Hufford at austen.hufford@wsj.com