CP Rail says Brookfield inquired, was rebuffed
Source: Reuters
Published: July 18, 2007

VANCOUVER, British Columbia (Reuters) - Canadian Pacific Railway Ltd., one of North America's biggest railways, said on Wednesday it had rejected an "inquiry" by Brookfield Asset Management. and denied it was in takeover discussions, but its shares soared.

CP, whose corporate roots run deep in Canadian history and folklore, said the inquiry from Brookfield -- reported to be leading a private equity consortium -- was made earlier this year and was "highly conditional," seeking exclusive negotiations and due diligence.

"CP's board of directors considered the inquiry to be inadequate after due deliberations and declined to enter into discussions," the Calgary, Alberta-based railway said in a statement responding to published reports of the offer.

The railway, which has a 13,600-mile (21,700-kilometre) network of tracks in both Canada and the United States, said it receives inquires about possible acquisitions or mergers "from time to time," but acknowledged they had increased in frequency.

"While CP continues to receive such inquires, it is not at this time in negotiations with any party with respect to a business combination," the company said in a statement. It added it would decline further comment on the speculation.

CP's shares leaped as much as 18 percent to a record high of C$91 on the Toronto Stock Exchange when trading resumed after a morning halt. They closed up C$11.95 at C$89, a 52-week high for a stock that had already risen 25 percent this year after a 26 percent increase last year.

The Globe and Mail, citing people familiar with the matter, said Brookfield, in partnership with Goldman Sachs & Co. (GS.N: Quote) and pension manager Caisse de depot et placement du Quebec, had advanced a takeover bid for the 126-year-old railway several months ago, but that the offer was rebuffed.

However, the newspaper reported that the prospective buyout group recently asked for another meeting with CP directors, and that both Goldman and the Caisse were still with Brookfield on the effort, although the group does not want to mount a hostile bid.

Officials at the Caisse did not respond to a request for comment.

CP Rail was founded in 1881 to link the country's population centers in the East with its far-flung western reaches, a feat accomplished by November 7, 1885. CP, along with Canadian National Railway (CNR.TO: Quote), is one of Canada's two national railways.

There had been speculation that CP was the target of a private equity buyout, with analysts suggesting a share buyback launched this year was an attempt to thwart an offer.

Some analysts suggested the railway could fetch close to C$15 billion ($14.4 billion), and that Brookfield's move had put it in play whether management wanted it to be or not.

However, Citigroup analyst John Kartsonas warned in a note to investors that Wednesday's share price spike might make a takeover deal too costly.

There was also speculation CP might try defend itself by seeking a merger with another large railway, but an analyst reacted coolly to that idea, saying it would face trouble with regulators in the United States and Canada.

Bear Stearns analyst Ed Wolfe noted that the U.S. Surface Transportation Board rejected a proposed merger of Canadian National and Burlington Northern Santa Fe. (BNI.N: Quote) in 2000, and added that a strategic sale of CP to another carrier "seems an uphill battle."

The North American market is dominated by six companies referred to as the Class 1 railroads. They are Union Pacific Corp. (UNP.N: Quote), Burlington Northern, CSX Corp. (CSX.N: Quote), Norfolk Southern Corp. (NSC.N: Quote), Canadian National, and Canadian Pacific.