CP Canadian Pacific Kansas City Limited

By Betsy Morris And Laura Stevens 

The decision of whether to clear the combination of Canadian Pacific Railway Ltd. and Norfolk Southern Corp.'s railroads could take about 18 months and would likely be subject to an appeal before a final decision is reached, according to a key U.S. rail-industry regulator.

Daniel R. Elliott, chairman of the U.S. Surface Transportation Board, said the merger of the two railroads, which would be subject to his board's approval, would be "very complex." If it gets to that stage, he said while speaking at Rail Trends, an annual rail-industry conference in New York City on Friday, "there will be a lot to consider."

Mr. Elliott's comments follow CP's public proposal this week to acquire Norfolk Southern for more than $28 billion as it aims to create a North American rail network that stretches from Canada's West Coast to the Gulf of Mexico and Atlantic Ocean. Any deal would need to satisfy the STB's merger rules, a potentially tough sell in the first major test of requirements established by the agency in 2001 mandating that deals enhance competition.

Regulators would take under consideration the possibility that such a big merger might spark further rail-industry consolidation as they determine whether or not it would be in the public's interest, Mr. Elliott said.

Three to six months before a railroad can begin its merger-approval process with the STB, the applicant must submit a pre-filing notification, Mr. Elliott said. The board then has a month to accept or reject the application. The STB's evidence-gathering and hearing phase can take a year, after the conclusion of which the board has 90 days to make a decision on the merger.

"I'm sure there would be an appeal," Mr. Elliott added, which would take place in a federal appeals court.

CP on Wednesday released its letter to Norfolk Southern, in which it said it expected the transaction to close Dec. 31, 2017.

CP made its proposal public after a meeting last week between the two railroads' chief executives at which CP got a cool reception, according to a person familiar with the matter.

The two signaled they were far apart on a potential combination, differing on the value of CP's proposal. CP, in its letter, said a merger would allow the companies to achieve more than $1 billion in cost savings, boosting the ultimate value of the deal to as much as $42.64 billion.

At an investor conference Thursday afternoon, CP CEO Hunter Harrison said the companies hadn't spoken since the meeting with his counterpart at Norfolk Southern. "That's been one of the frustrating issues is it's hard to resolve issues and solve some of the issues if you don't talk," Mr. Harrison said.

He also indicated that the value of the deal could increase. He asked for a price, which Norfolk Southern hadn't given at the meeting, he said. "Is that our final offer line in the sand? No. And I tried to indicate that to them," he added.

When it comes to gaining regulatory approval, the STB is bound by its rules, and CP will make a "compelling case," Mr. Harrison said.

"Now if in their wisdom, if the board says there's some downstream effects that we've overlooked or missed and they say no, they say no and we move on," he said.

Write to Betsy Morris at betsy.morris@wsj.com and Laura Stevens at laura.stevens@wsj.com

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(END) Dow Jones Newswires

November 20, 2015 16:49 ET (21:49 GMT)

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