While Norfolk Southern said it would carefully evaluate the offer, its sour response represents a setback to Canadian Pacific as well as its largest shareholder, William Ackman’s activist hedge fund Pershing Square Capital Management.

Ackman, a big advocate of consolidation in the North American railway sector, recruited Hunter Harrison, who had previously been chief executive officer of Canadian National Railway, as CEO of Canadian Pacific in 2012.

In a statement earlier on Tuesday announcing its offer to Norfolk Southern, Canadian Pacific argued that the combined railroad would offer unparalleled customer service and competitive rates for shippers, and that it would satisfy the U.S. Surface Transportation Board (STB) and Canadian regulators.

The STB has a public interest test when considering whether to approve mergers, so a deal would not only have to address antitrust concerns but also result in improved service, economic efficiencies and public safety for those using the railways.

Yet not only has Canadian Pacific failed to convince Norfolk Southern that the merger could receive regulatory clearance, it has offered no protection for Norfolk Southern shareholders in the event the deal would be blocked, according to a source who asked not to be identified because details of the discussions are not public.

The first time Canadian Pacific contacted Norfolk Southern about the deal was after a Bloomberg News report on Nov. 9 that cited people familiar with the matter who said the two companies had held early-stage merger talks, the Reuters source added.

Norfolk Southern Chief Executive James Squires subsequently met with Harrison in Florida last week to discuss the potential merger, according the source. Squires told Harrison he viewed the regulatory obstacles as insurmountable and that Norfolk Southern had a plan of its own to drive shareholder value, the source added.

Canadian Pacific is offering Norfolk Southern shareholders $46.72 in cash and 0.348 Canadian Pacific shares for every Norfolk Southern share they own, Norfolk Southern said in its statement.

That works out to about $94.94, a 9% premium to Norfolk Southern, based on both stocks’ Tuesday close.

Regulators have been skeptical of North American railway mergers for years. Canadian National Railway’s bid to buy Warren Buffett-owned Burlington Northern Santa Fe was blocked by U.S. antitrust authorities in 1999-2000.

More recently, Canadian Pacific’s merger talks with CSX, which also owns a large network across the eastern United States, also failed last year.

Norfolk Southern operates 20,000 route miles in 22 states, mostly in Eastern United States, while Canadian Pacific transports to eight major ports in the United States and Canada, including Vancouver and Montreal.

East- and west-based North American railways meet in Chicago and hand off cargo, a process that can take days. A deal with Norfolk Southern would improve congestion around Chicago, Canadian Pacific said in its statement.

U.S. railroad stocks have dropped sharply this year, hurt by a fall in high-margin coal shipments and weak oil prices.

Up to Tuesday’s close, Canadian Pacific’s shares had fallen nearly 33% this year, while Norfolk Southern’s stock had lost about 24%. Canadian Pacific has a market value of $21.15 billion ($15.89 billion).

Ackman is currently under pressure because of heavy losses in another Canadian company, Valeant Pharmaceuticals International, whose shares have plunged more than two-thirds since early August over concerns about its financial practices and drug pricing.