Canadian Pacific reportedly mulling bid for Norfolk Southern rail company

Shares in Canadian Pacific Railway and U.S. rail line Norfolk Southern were both sharply higher on Monday after a Bloomberg report suggested the two companies were exploring a merger.

Citing unnamed sources close to the negotiations, the newswire reported Monday that CP, which is Canada's second-largest rail company, is trying to buy or merge with U.S. rail line Norfolk Southern.

Canadian Pacific is worth about $29 billion on the TSX. Norfolk Southern is worth $26 billion US on the NYSE. Shares in Norfolk Southern were up 12 per cent to just over $89 a share on Monday. CP, meanwhile, was up about five per cent to $182.

The move comes on the heels of an attempt by CP to buy U.S. rail line CSX last year as part of a goal of consolidating the sector by creating one rail company that operates both in Canada and the U.S. But talks between CP and Florida-based CSX came to nothing.

Currently, the North American rail network is a Byzantine combination of grids owned by the two Canadian companies, plus about a half-dozen U.S lines, each with rival networks that interact at frequent bottlenecks, which breeds inefficiency.

Norfolk Southern owns 32,000 kilometres of rail lines across 22 U.S. states. Primarily eastern-based and CSX's main rival on the eastern seaboard, it connects with the western network in Chicago, which is the central hub of North America's rail network.

CP's lines, by contrast, crisscross Canada and extend into several U.S. midwestern states, including Chicago. Norfolk, meanwhile, has little presence in the Western U.S.