North America - Hunter Harrison is a man who's used to being proven right.
 
He's transformed three railroads from laggards to leaders in his half-century-long career, confounding his critics, and reshaping the industry along the way.
 
But with his attempts to complete a mega-merger before he retires next year, Canadian Pacific Railway Ltd.'s (CP) chief executive may finally have run up against a hurdle that even a railroading legend like him can't overcome.
 
After five months of trying to orchestrate a deal, Harrison acknowledged Monday that it was time to give up on his efforts to acquire Norfolk Southern Corporation (NS), a Virginia-based railway that serves the U.S. East Coast.
 
It's a rare disappointment for Harrison, who plans to retire in 2017 and has made it clear that he wants a transformative deal to be his swan song.
 
But even if Harrison slips quietly into retirement next year without completing a mega-deal, or getting the chance to turn around one more railroad, his legacy won't be tarnished, analysts say.
 
"Hunter Harrison is a legend in the railroad space regardless of whether this deal happened or not, period, end of story," said Jason Seidl, transportation analyst at Cowen & Company.
 
Christian Wetherbee, who covers the railways for Citigroup, agrees.
 
"I think it would have been a great capstone on his career to be the architect of the last wave of consolidation, but I don't think he loses anything for not getting this deal done."
 
For now, Harrison has vowed to "turn all of our focus and energy to serving our customers and creating long-term value for CP shareholders" whether that includes a future merger or not.
 
Together with Bill Ackman, the activist investor who installed Harrison as CP's chief executive in 2012 after a nasty proxy battle and who is still the company's second-largest shareholder, he has passionately made the case that consolidation is necessary to reduce congestion, particularly in the vital rail hub of Chicago.
 
"We know at a point the economy's going to bounce back and there's going to be tremendous pressure on the infrastructure from the Mississippi River east," Harrison said during a January conference call with analysts.
 
"What's going to be the solution? Who's going to look at this a little bit longer-range in a more mature fashion and say, what are we going to do? In my view, some people are just sticking their heads in the sand."
 
Unfortunately for Harrison, a slump in prices for coal, oil, and other commodities combined with a tepid economy to reduce freight volumes just as he was making his dire warnings about congestion.
 
"If you had a chronically slowed-down North American rail system due to volume congestion, then I think it would have been an easier story to tell," said Citigroup's Wetherbee.
 
But even if the economy had cooperated and Harrison managed to win over more stakeholders, U.S. regulations make it very difficult to merge two Class 1 railways, defined as those that generated at least US$476 million in 2014 operating revenue.
 
In 2001, the U.S. Surface Transportation Board (STB) imposed new rules on Class 1 mergers, including the stipulation that a deal has to actually enhance competition.
 
Since then, not one merger has been completed.
 
Although Harrison offered a few competition-enhancing concessions, analysts said the likelihood of a deal was slim from the get-go.
 
This was only exacerbated as more and more stakeholders came out in opposition to the proposal.
 
Investors seemed to like CP's proposal to take over NS, Harrison in January said that more than half of that railway's shareholders had expressed their support, but virtually no one else did.
 
Politicians, shippers, unions, and eventually even the U.S. Army and the Department of Justice came out against the US$27 billion offer, as did NS's management and board of directors.
 
A survey conducted in December by Cowen & Company found that roughly 71 percent of shippers did not support the deal.
 
"The bottom line is that mergers will happen when shippers want them, and shippers will only want them if there's not enough capacity out there, or because one of the railroads is really failing," said Tony Hatch, principal at railway consulting firm ABH Consulting.
 
"I don't think the conditions were right for mergers to be accepted."
 
The STB also received several letters from senators and congressmen who opposed the deal.
 
NS was also undoubtedly doing some aggressive lobbying behind the scenes, said Frank Wilner, a former chief of staff at the STB and author of "Railroad Mergers:  History, Analysis, Insight".
 
"It's really a no-brainer for the congressmen," Wilner said.
 
"They don't get any contributions out of Canada, so it was quite easy for them to write the letters."
 
But there may be a way around the political and regulatory opposition against Class 1 mergers.
 
"A CP-NS merger may be dead, but the genius of Hunter Harrison remains and we could see an attempt to take NS or CSX private," Wilner said, much like Warren Buffett did when he acquired BNSF Railway Company in 2009.
 
"This would avoid U.S. regulatory oversight, which applies only to unifications involving two or more railroads."
 
Wilner speculated that Ackman could take advantage of CP's widely-believed intention to launch a share buyback program to sell his stake and then put together a consortium to acquire CSX or NS.
 
The "bait" for such a move, he adds, would be Harrison.
 
"You've got Hunter and his model to dangle to the investors and say, look, this is what this guy accomplished, we could make gobs of money," he said.
 
Harrison's legendary status stems from his operational genius, which is best reflected in the precision railroading model that he developed 20-years-ago at Illinois Central Corporation (IC), later acquired by Canadian National Railway Company (CN), where he became chief operating officer and then chief executive.
 
Precision railroading, according to a white paper released shortly before CP walked away from its attempt to merge with NS, "is similar to the airline industry, where a plane will leave at its scheduled departure time regardless of whether all seats are filled."
 
This is a significant departure from the traditional model, which involved holding trains until they were completely full, often delaying customer shipments in the process.
 
In the white paper, CP made the case that Harrison could use precision railroading to transform NS the same way he transformed IC, CN and CP.
 
To detractors who argued that precision railroading wouldn't work at a dense, complex eastern railroad such as NS, the white paper points out that the previous management team at CP said much the same thing, "that CP's network was topographically unique and was not amenable to precision railroading."
 
Harrison deftly proved them wrong, lowering the company's operating ratio, a key measure of efficiency, where a lower number is better, to 61 percent in 2015 from 81 percent in 2011.
 
This was accompanied by an 18 percent growth in revenue and a 133 percent jump in earnings per share between 2012 and 2015.
 
"Hunter Harrison challenged the conventional wisdom of railroading and pushed the envelope, and, still to this day, people are trying to emulate some of the things that he did," said Seidl at Cowen & Company.
 
"Has he ruffled feathers along the way? Of course, but what visionary hasn't in their industry?"
 
With the merger distraction off the table for now, Harrison will turn his attention back to running CP and analysts believe there's room for even more efficiency improvements at the railway under his guidance.
 
"In the next year, he's got lots of opportunities to make shareholders money at CP, even in a stagnant volume environment," ABH Consulting's Hatch said.
 
"He still has a chance to burnish his legacy, but, frankly, if he just walked away to his horse farm today, he would already be solidly in the pantheon."
 
Kristine Owram.