18 July 2007
CP Rail Says Brookfield Inquired, But No Talks
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Fred Green, president and chief executive officer of Canadian
Pacific Railway.
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Canadian Pacific Railway Ltd. said on Wednesday it rejected an
"inquiry" from Brookfield Asset Management Inc., and denied it was in discussions about a takeover of one of North America's
largest railways.
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-based railway said in a statement responding to published reports of the offer.
Shares in CP leaped as much as 18 percent to a record high of $91 on the Toronto Stock Exchange after trading resumed. The stock was
halted pending a statement from the company.
The railway, which has operations in both Canada and the United States, said it receives inquires about possible acquisitions or
mergers "from time to time."
"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.
The Globe and Mail, citing people familiar with the matter, said Brookfield, in partnership with Goldman Sachs & Co. and pension
manager Caisse de depot et placement du Quebec, had mulled a takeover bid of the 126-year-old railway several months ago,
but was rebuffed.
However, the prospective buyout group recently asked for another meeting with CP Rail directors, and both Goldman and the Caisse were
still with Brookfield on the effort, although the group does not want to mount a hostile bid, the newspaper reported.
Brookfield declined comment on the report. 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 7 Nov 1885. CP, along with Canadian National Railway, is one of Canada's two national railways.
There had been speculation that CP was the target of a private equity buyout, with analysts speculating that a share buyback launched
this year was an attempt to thwart an offer.
Analysts suggested the railway could fetch close to $15 billion.
The Globe and Mail report also speculated that 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 Corp. 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. , Burlington
Northern, CSX Corp., Norfolk Southern Corp., Canadian National, and Canadian Pacific.
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