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Canadian Pacific says railroads will need mergers in future

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OMAHA, Neb. — The CEO of Canadian Pacific still thinks railroad mergers are needed if the industry is to handle more freight, even after the company’s bid for Norfolk Southern crumbled under stiff resistance.

Hunter Harrison said he thinks major railroad mergers will happen eventually and that they’ll be successful. He says worsening congestion in Chicago, where the major railroads all meet, will force a change.

Earlier this month, Canadian Pacific dropped its roughly $30 billion offer to acquire Norfolk Southern Corp. because the deal was opposed by Norfolk Southern executives, politicians and rail customers along the route and other railroads.

Harrison said some of the rail customers that opposed Canadian Pacific’s attempted buyout told him they didn’t oppose mergers but worried about the service problems that followed past railroad deals. That made it hard for Canadian Pacific to argue that it could do better because the proposed merger was being judged on what other railroads had done in the past.

The service problems and economic damage that followed railroad mergers in the 1990s are part of why regulators adopted tough rules for major railroad mergers in 2001. Any merger involving a major railroad must enhance competition and serve the public interest.

“There’s only so much we can do,” Harrison said. “It’s going to happen. We just have to develop a little patience.”

Canadian Pacific also said Wednesday that it will increase its dividend to 50 cents, from 35 cents. And it plans to repurchase up to 5 per cent of its stock, or about 6.9 million shares.

Keith Creel, president and chief operating officer, said the Calgary, Alberta, based railroad is preparing for Harrison’s retirement next year. Creel said the railroad plans to consolidate its three operating regions into two as part of its planning for the transition, but he didn’t expect significant savings from that.

The 71-year-old Harrison came out of retirement to lead Canadian Pacific in 2012 after activist investor Bill Ackman took a large stake in the railroad and forced management changes. Harrison had previously led Canadian National and Illinois Central railroads.

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