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11/26/2003



Rail News: M&A

CN adds to acquisition roster by bagging BC Rail bid


As had been widely speculated, the winning bidder for BC Rail Ltd. is the Class I that’s been the most active in the railroad acquisition market for the past few years: Canadian National Railway Co.

On Nov. 25, the province of British Columbia announced it chose CN to enter into a "BC Rail Investment Partnership" under which the railroad will pay British Columbia $768 million in cash to acquire the 1,400-mile regional’s outstanding shares and the right to operate over BC Rail’s roadbed under a long-term lease. The regional’s rail bed will remain in public hands, with CN assuming responsibility for rail transportation and infrastructure maintenance.

The province selected CN’s bid over those submitted by Canadian Pacific Railway and a Burlington Northern Santa Fe/OmniTRAX Inc. joint venture because of CN’s north/south network and deep pockets.

"CN set itself apart from the other proponents with its capacity to re-invest in the railway and to link shippers with markets across North America," said Transportation Minister Judith Reid in a prepared statement.

CN plans to spend $1 million to build a state-of-the-art wheel shop at BC Rail’s Prince George, B.C., shop complex to in-source wheel work currently contracted out, and assign CN system rail-car and locomotive work to the facility. CN also expects to locate a new B.C. North Division office in Prince George and move most of its switching activities from its downtown yard to BC Rail’s yard to free up land for potential commercial, light industrial and recreational development.

"Purchasing the BC Rail franchise is a strategically important initiative for CN, one that will strengthen our forest products business and that has significant scope for shareholder value creation," said CN President and Chief Executive Officer E. Hunter Harrison. "The rail combination will offer BC Rail shippers unparalleled routes to major NAFTA and international markets – a new network of routes that will strengthen the competitiveness of the B.C. economy."

CN plans to add 600 new rail cars to BC Rail’s fleet, and provide interline shippers an average 7 percent rate reduction and 30 percent faster transit times from Prince George to Vancouver. In the first quarter, the partnership also expects to introduce "Chicago Express," a service offering Prince George-to-Chicago moves two days faster compared with current service.

In addition, the partners plan to establish an "Open Gateway Rate and Service Commitment" to maintain access for shippers to competing railroads at Vancouver, continue D’Arcy to Lillooet and Takla shuttle services, and re-open the Dawson Creek-to-Hythe line to facilitate grain handling from the Peace region. The province will provide $17.2 million to help expand the Port of Prince Rupert, including construction of container terminal facilities, and CN will invest up to $15 million in new rail infrastructure to help support the port expansion.

The integration of CN’s and BC Rail’s operations will be conducted during the next three years to ensure a smooth transition for shippers and fair treatment of employees, CN officials said.

Although Council of Trade Unions on BC Rail – which strongly opposed the sale – projected the transaction would lead to major job losses, CN estimates its operating plan will affect 430 BC Rail employees province-wide during the next three years. About 250 employees will be eligible for early retirement, resulting in 180 involuntary departures to be achieved through attrition or severance, CN officials said, adding that 25 rail jobs will be affected.

"We will do our utmost to work with BC Rail communities to pursue growth opportunities and to find creative ways to lessen the impact of our operating plan on employment levels," said Harrison.

BC Rail is the third regional CN has acquired during the past five years, following purchases of Illinois Central Railroad in 1998 and Wisconsin Central Ltd. in 2001. CN also recently acquired Great Lakes Transportation L.L.C.’s assets, which include two short lines and a switching road.

"CN has a record of flawlessly bringing other railroads into its system," said Harrison. "This success has delivered real benefits to shippers, shareholders and employees, [and] we expect nothing less in the integration of BC Rail into CN’s network."


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