Merger talks between U.S. railroad giants Canadian Pacific and Norfolk Southern turned sour Tuesday after Norfolk dismissed the $28.4 billion offer as “low-premium” and warned that a combined company -- with operations in Canada and the U.S. -- would face significant regulatory hurdles.

Canadian Pacific went public with its intention to take over Norfolk earlier Tuesday, promising “a sizable premium,” in cash and stock, without giving a deal value. Norfolk all but rejected the offer a few hours later in a press release which revealed the details of the offer.

"Canadian Pacific is offering Norfolk Southern shareholders $46.72 in cash and 0.348 Canadian Pacific shares for every Norfolk share they own. ... A premium of less than 10% based on closing prices today," Norfolk said in its statement.

The company also said it saw little chance that regulators would approve a merger between two Class I railroads, an industry term for the seven biggest railroading companies in America. Norfolk’s shares rose by about 6.1 percent in after-hours trading in New York while Canadian Pacific’s shares fell marginally.

The spike in Norfolk’s shares could suggest that shareholders expect a better offer in the coming days. “I don’t see CP [Canadian Pacific] letting this get away from them. This is an important acquisition for them,” Victor Kuntzevitsky, a senior associate at Northland Wealth Management in Toronto, told Bloomberg.

Canadian Pacific has been looking for consolidation, after its talks with another large railroad company, CSX Corp., failed in 2014. Tuesday’s response by the Norfolk board may not deter Canadian Pacific, which could present a hostile bid directly to the firm’s shareholders.

Prior to Norfolk’s rejection, Logan Purk, an Edward Jones & Co. analyst, told Bloomberg: “This is the first letter to management that CP is sending. It wouldn’t surprise me if Norfolk refused it out of the gate. That’s when you can go to shareholders.”

Tuesday’s exchange marks another setback for activist investor Bill Ackman and his hedge fund Pershing Square Capital Management LP -- Canadian Pacific’s largest shareholder. Ackman came under fire last month after incurring heavy losses to his stake in another Canadian drug manufacturer Valeant Pharmaceuticals, which lost more than two-thirds of its market value since early August over concerns about its drug pricing and financial practices.

Ackman has long espoused big ticket rail tie-ups, according to reports, hiring like-minded Hunter Harrison as CEO of Canadian Pacific in 2012. While Canadian Pacific said that a combination with Virginia-based Norfolk would offer better customer service and competitive rates for shippers, such a large deal has not been approved by regulators in recent railroad history.

In 2000, Canadian National Railway Co. and Burlington Northern Santa Fe Corp. ditched a cross-border deal amid opposition from the U.S. Surface Transportation Board, according to Bloomberg.

U.S. railroad stocks have plunged sharply this year, due to a fall in high-margin coal shipments and weak oil prices. Up to Tuesday's close, Norfolk’s shares had fallen 20.6 percent this year, while Canadian Pacific’s shares lost about third of their value.