What: Shares of Canadian Pacific Railway Limited (USA) (NYSE:CP) popped as much as 13% in trading Friday on speculation it may drop an acquisition bid.
So what: Canadian Pacific has been trying to buy Norfolk Southern (NYSE:NSC) since mid-November, but has run into opposition from everyone from investors to customers. On Thursday, management alluded to the fact that it may be ready to drop the bid rather than fight a drawn-out battle for the company.
Management also seemed to indicate that share buybacks could be on the table if the acquisition is dropped, something investors seemed to like much more at today's stock price.
Now what: There's been a debate whether railroads need to go through a consolidation phase, or just adapt to today's market. Volumes have been weak lately as coal shipping has plunged, and other commodities have dropped. On the horizon, we could also see a slowdown in oil shipped by rail, so there's really no turnaround ahead for the industry.
Despite the challenges, going through a costly battle for Norfolk Southern may not have been the best use of capital for Canadian Pacific. That's the real reason investors are bidding the stock higher today.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.