Canada Rail Co. To Buy Ill. Central
Feb. 11, 1998
CHICAGO (AP) _ Canada's biggest freight railroad said Tuesday it has agreed to purchase Illinois Central railroad in a $2.4 billion cash-and-stock deal that would create a network spanning nearly 19,000 miles from the Gulf of Mexico through Canada.
The announcement from Canadian National Railway Co. of Montreal comes less than a week after Chicago-based Illinois Central said it was putting itself up for sale. Canadian National would buy 46.1 million of Illinois Central's 61.4 million shares outstanding at $39 a share and assume $560 million in Illinois Central debt under terms of the agreement.
The deal consists of 75 percent cash and 25 percent Canadian National stock.
If approved sometime next year, the merger would create the fifth-largest railroad in the North America in terms of revenue, at $3.7 billion annually.
``This combination is about growth,'' said Paul Tellier, Canadian National's president and chief executive. ``It's a perfect fit of two complementary lines providing a three-coast strategy from the Atlantic to the Pacific to the Gulf of Mexico.''
E. Hunter Harrison, Illinois Central's president and chief executive, would get the new Canadian National title of chief operating officer.
``We hope to provide a superior service, which gives us market share and quality of revenue opportunities,'' Harrison said.
The agreement, which is subject to shareholder and antitrust approval, was announced after trading had ended for both companies' stock on the New York Stock Exchange. Illinois Central's shares closed down 6 1/4 cents at $35.68 3/4 a share. Canadian National's U.S.-listed shares fell 12 1/2 cents to $54.43 3/4 each.
Illinois Central Corp. operates the 2,600-mile Illinois Central freight railroad from Chicago south to the Gulf of Mexico and the 850-mile Chicago Central freight line from Chicago west through Iowa. Abraham Lincoln made his reputation at the company as a staff attorney.
The company's name will remain in use throughout the United States, both sides said. The possible closing of Illinois Central's headquarters or layoffs among the two sides' combined 25,600 employees will be evaluated during the merger process, Harrison said.
A merger of Canadian National and Illinois Central would be the latest in a string of railroad mergers in recent years. In 1996, Union Pacific merged with Southern Pacific. The previous year saw the merger of the Burlington Northern with the Santa Fe. Last year, CSX Corp. and Norfolk Southern announced a plan to split up Conrail, a move that is still awaiting regulatory approval.
Burlington Northern and Union Pacific both have more than 30,000 miles of track branching out from Chicago and covering most of the West. The two railroads control 90 percent of freight traffic west of the Mississippi River.
The Union Pacific-Southern Pacific deal has had its problems. The merger created gridlock along Union Pacific's 36,000-mile system and has stranded grain harvests, clogged California ports and stalled production at Gulf Coast petrochemical plants, northwest lumber yards and steel mills.
UP officials said recently service is almost back to normal, except for about 250 miles of track from Houston to New Orleans.
Illinois Central's livelihood stems mainly from shipping coal, chemicals and grain. The railroad also carries paper and semi-trailers that can be unloaded and attached to trucks for transport to other destinations.
The Canadian National is the sixth biggest railroad in North America, with tracks that extend from Vancouver, British Columbia, to Halifax, Nova Scotia.
Since Canadian National was privatized in 1995, the railroad has worked to improve its delivery system to the key hubs of Chicago and Detroit, taking advantage of the North American Free Trade Agreement.
A combined company would free Canadian National of the restraints that forced it to divide shipments among other rail carriers and reduce the need for trucking, helping it steal traffic from competitors in both industries, Tellier said.