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October 20, 2014 9:00 AM, EDT

Canadian Pacific Confirms End of Merger Talks With CSX

Luke Sharrett/Bloomberg News

Canadian Pacific Railway Ltd. said talks about a possible merger with CSX Corp. have ended and no further conversations are planned.

Canada’s second-largest railroad approached CSX with a proposal for a coast-to-coast tie-up to improve service, boost competition and ease congestion in North America, especially in the key Chicago gateway, according to a company statement. CSX, the biggest railroad in the eastern U.S., rejected the offer, though mention of the talks sparked speculation that there could be other deals in the offing.

“CP is convinced that the significant problems that beset the industry now will only worsen over time if solutions aren’t put in place immediately,” the Calgary-based company said in the statement. “A pro-competition, customer-friendly, safety-focused railway combination is one such solution that could not be ignored on its merits by regulators.”

There hasn’t been a major North American railroad takeover since Warren Buffett’s purchase of Burlington Northern Santa Fe in 2010. Even after being spurned by Jacksonville, Florida-based CSX, Canadian Pacific may make another approach or consider another target, said a person familiar with the matter earlier this month.

CSX Chief Executive Officer Michael Ward said on a conference call Oct. 15 that rail consolidation could create disruptions in freight traffic, and U.S. regulators would be “very concerned” by the merger.

The seven largest U.S. and Canadian railroads account for more than 90% of rail revenue, whereas the top 10 trucking companies make up just 10% of that industry’s revenue, Ben Hartford, a Milwaukee-based analyst at Robert W. Baird & Co., said earlier this month.

While regulatory concerns may be a major deterrent for many railroads considering combinations, getting approval is achievable “given the right structure between the right players,” Canadian Pacific said.