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Politics killed Canadian Pacific merger with Norfolk Southern, CEO says

Canadian Pacific Railway’s proposed merger with Norfolk Southern was killed by political influence and a system that stacked the deck against a Canadian company, chief executive Hunter Harrison said Wednesday.

“Is it more difficult for us? Yes, as a Canadian company,” he said in an interview ahead of the railway’s annual meeting in Toronto.

“Can we overcome it? Yes. It’s just a little harder.”

Last week, CP gave up its merger attempt after the U.S. Justice and Defense departments raised concerns about the proposed takeover.

“When we get to the point where the U.S. Army is weighing in on the merger, then it’s like the deck is stacked against us,” said Harrison.

He said he knew CP’s unsolicited takeover proposal to create North America’s largest rail network was in trouble when many congressmen wrote letters to the railway regulator expressing concerns about the merger. Still, he said the railway sector needs consolidation that can address bottlenecks at a major transit point in Chicago.

“Every dog has its day and we’ll have our opportunity,” he said.

Harrison made the comments as the Calgary-based railway said it remains on track to double earnings by 2018 or 2019 after chugging past a weak economy in the first quarter to report higher profits.

CP (TSX:CP) raised its dividend by 43 per cent. It will now pay a quarterly dividend of 50 cents per share, up from 35 cents.

For its first quarter, the company said it earned $540 million or $3.51 per diluted share, up from a profit of $320 million or $1.92 per diluted share a year ago.

On an adjusted basis, profit was $384 million or $2.50 per diluted share, up from $375 million or $2.26 per diluted share.

Revenue slipped to $1.59 billion from $1.67 billion in the first three months of 2015. Lower volumes of crude, U.S. grain and coal partly accounted for the decline.

CP also reported that its operating ratio, which tracks operating expenses as a percentage of revenue, improved to 58.9 per cent compared with 63.2 per cent a year ago.

“It really bodes well for the future in that when we see the economy strengthen a little bit … it’s certainly going to put us in a position to have some really record results that you have not seen before,” Harrison said during a conference call with analysts.

In addition to the increased dividend, the railway said it may buy back up to 6.91 million of its shares or roughly five per cent of its public float under its normal course issuer bid.

Harrison said he is optimistic that in addition to help from automotive and forest products, the railway will see improved volumes of coal, potash and grain in the second half of the year.

CP said it also expects to cut 1,300 to 1,400 jobs this year by attrition, up from 1,000 forecast in January.

“The bottom line is if somebody wants to work they can work,” said Harrison, noting that 6,000 to 7,000 positions have been cut in the past four years.