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While Canadian Pacific Railway Ltd. has a little room to restructure its offer for Norfolk Southern Corp., a proxy fight appears likely at this point, according to Hunter Harrison, the Canadian carrier’s chief executive officer.

The U.S. railroad, which rejected its suitor’s revised proposal on Monday, hasn’t engaged in negotiations, Harrison said.

“Now it’s time to talk turkey,” he said in an interview on Bloomberg Television. “They’re going to have to talk to us, or we’re going to have to take another tactic.” Since Norfolk Southern hasn’t agreed to discuss the proposal, a proxy battle “sure seems” likely, Harrison said in the interview with Bloomberg’s Erik Schatzker.

Harrison, 71, wants to create a transcontinental railroad by combining Canada’s second-largest carrier with the No. 2 operator in the eastern U.S. Canadian Pacific revised its bid last week, offering Norfolk Southern shareholders $32.86 in cash and 0.451 share of stock. That indicates a value of $27 billion based on Canadian Pacific’s closing price last Monday. Harrison has been rebuffed twice by the Norfolk, Virginia-based carrier.

Proposal Rejected

Norfolk Southern said in a regulatory filing Monday that the premium offered by Canadian Pacific was too small and the merger and the voting trust proposed wouldn’t be approved by regulators.

Canadian Pacific remains convinced that the combination and the trust would be approved by U.S. regulators, according to a person familiar with the railway’s thinking. If the voting trust is rejected by regulators, very little would be lost in pursing the matter, outside of legal fees, said the person, who asked not to be identified because the matter is private. And if the merger is ultimately rejected, Norfolk Southern or Canadian Pacific would simply be spun out to shareholders as a special dividend, the person said.

Harrison said Monday that a different instrument beyond the cash-and-stock offer could allow the Calgary-based railroad to “sweeten the pot.” He suggested a contingent value right, a tool that gives holders of an acquired company additional benefits if a specified event occurs, subject to an expiration date.

“It, to some degree, brackets the upside and downside of the offer, and if there is in some people’s view, certain risks, it modifies the risk,” he said. Canadian Pacific can’t overpay for Norfolk Southern “because we don’t think the value’s there.”

Diluting Position

Canadian Pacific “cannot lose sight of who we’re representing here,” Harrison said. “That’s the CP shareholders here. We’re not going to dilute their position. We’re not going to pay $150 or whatever.”

Norfolk Southern shares closed little changed at $89.35 in New York, while Canadian Pacific fell less than 1 percent to C$169.08 in Toronto.

“We’ve made some breakthrough with the shareholders,” Harrison said in the interview, at his horse farm in Florida. “Our polling says they’re very interested in the transaction. We’d love to sit down with Norfolk Southern.”

The way Harrison sees it, the odds of a deal going forward are in Canadian Pacific’s favor.

“My personal view is, it’s better than 50-50,” he said. “It’s certainly not a slam dunk. We’ve certainly got some challenges ahead of us.” A Norfolk Southern spokesman declined to comment on Harrison’s remarks.

BNSF’s Role

Harrison also said he doesn’t expect that the railroad controlled by Warren Buffett’s Berkshire Hathaway Inc. will jump into the contest. BNSF Railway Chairman Matt Rose said last week he would be open to making a competing offer for Norfolk Southern -- comments that didn’t sit well with the Canadian Pacific CEO.

“Matt’s a good friend of mine, he’s trying to muddy the water, I think. I’m not saying they couldn’t do it if they want to. They’re just not prepared and don’t have the team in my view to do it,” Harrison said. “For Matt just to get on and start throwing statements around is a little irresponsible.”

A BNSF spokesman didn’t have an immediate comment.

Canadian Pacific has maintained that Norfolk Southern would benefit even during regulatory review, which is expected to last as many as two years, if Harrison was able to run the railroad as he has proposed. He gained a reputation for improving the efficiency of Canadian Pacific since taking the helm in 2012 and at Canadian National Railway Co. and Illinois Central before that.

— With assistance by Thomas Black

( Updates with closing stock prices in 10th paragraph. )