Norfolk Southern has rejected Canadian Pacific's cash-and-stock proposal to combine the two railroads.
Last month Canadian Pacific offered $46.72 in cash and 0.348 shares in the combined company.
Norfolk Southern Corp. said Friday that its board determined the proposal was "grossly inadequate, creates substantial regulatory risks and uncertainties that are highly unlikely to be overcome and is not in the best interest of the company and its shareholders."
In a letter sent to Canadian Pacific CEO E. Hunter Harrison and Chairman Andrew Reardon, Norfolk Southern said that it felt the regulatory review process for the proposed deal would take two years or more, with a very low likelihood of approval. Even if it were approved, Norfolk Southern said it would be "in limbo" for that time period, "causing loss of momentum and disruption to our business and operations."
Norfolk Southern said that it believes the ongoing execution of its strategic plan is superior to Canadian Pacific's proposal.
Canadian Pacific said that it is reviewing Norfolk Southern's response.
Federal regulators haven't approved any major railroad mergers in more than 15 years. One of the only major deals in recent years is when Warren Buffett's Berkshire Hathaway conglomerate bought BNSF railroad in 2010.
Shares of Norfolk Southern dropped $5.78, or 6.2 percent, to $87.33 in morning trading, while Canadian Pacific's stock fell $5.79, or 4.1 percent, to $135.12.