Norfolk Southern Corp., a railroad operator in the United States has all but rejected the $28.4 billion takeover bid by Canadian Pacific Railway, stating that the offer was "low-premium" and warning that the takeover bid could face difficult regulatory challenges.

The offer by Canadian Pacific is $46.72 in cash and 0.348 of a Canadian Pacific share for every Norfolk Southern share which represents a value of around $94.94. This figure is a 9 percent premium to the value of Norfolk Southern shares upon the closing of trading on Nov. 17.

Norfolk Southern, however, said that it would be carefully evaluating the takeover offer, despite the confidence-stomping response to the bid by Canadian Pacific and its largest shareholder, Pershing Square Capital Management, an activist hedge fund owned by William Ackman.

Ackman has been a major advocate for the consolidation of the railway industry of North America. He was the one that recruited back in 2012 current Canadian Pacific CEO Hunter Harrison, who was previously the CEO of Canadian National Railway.

According to Canadian Pacific, a successful takeover of Norfolk Southern will result in a combined railroad that can offer customer service and rates that would be unparalleled in the industry. The company also believes that the takeover would be approved by the United States Surface Transportation Board and regulators in Canada.

For the merger to be approved by the United States Surface Transportation Board, the deal should pass antitrust concerns and lead to improvements in service, public safety and economic efficiencies.

However, Canadian Pacific has not yet convinced Norfolk Southern that if it accepts the takeover offer, regulators will approve of the merger. In addition, there has been no offer for protection to shareholders of Norfolk Southern in case the takeover would be blocked by regulators, according to a source who wishes to remain anonymous as the details have not yet been publicized.

Last week, the two companies held merger talks, but these were still in the early stages. Norfolk Southern CEO James Squires then had a meeting with Harrison for the discussion of the takeover. Squires said he believed the regulatory hurdles were insurmountable, and that the company had its own plan to increase shareholder value.

Concerns that regulators would block the merger are based on the failed deals in the past, including the failed bid by Canadian National Railway to purchase Burlington Northern Santa Fe, owned by Warren Buffett, in 1999 to 2000.

A more recent failed takeover bid in the industry is the collapsed merger talks between Canadian Pacific and CSX Corp., which owns a rail network in the eastern region of the United States.

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