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CN says it's not tied to EJ&E deal
Canadian National Railway Co. warned July 21 that it's willing to abandon plans to acquire a Chicago-area rail carrier if too many strings are attached to the purchase, the Canadian Press reports.

CN announced in September that it had struck a tentative deal to buy the strategic Elgin Joliet & Eastern Railway Co. for $300 million (U.S.), hoping to bypass train gridlock in Chicago's core by rerouting traffic through EJ&E's suburban tracks.

But Hunter Harrison, CN's chief executive officer, said the railway isn't wearing blinders when it comes to the deal, which would clear the way to speed up shipments across its network, including from the Port of Prince Rupert in British Columbia to the Memphis hub.

"Would we ever walk? Absolutely. I mean, we're good business people," Mr. Harrison said yesterday during a conference call, noting that CN hasn't fallen deeply in love with the deal.

"We could run this railroad without the EJ&E. We could run it a lot more efficiently with it. But if it gets to the point where the mitigation costs or the timing of the issue is going to drag out for so long. ... We're very good at turning our backs and walking the other way and figuring out another way to skin the cat."

He made the comments after CN announced an 11-percent slide in second-quarter profit as rising fuel costs and a strong loonie eroded the bottom line.

Montreal-based CN is seeking approval from the U.S. Surface Transportation Board to buy EJ&E. The transaction is running into opposition from groups of suburban Chicago citizens, including members of the Barrington Communities Against CN Rail Congestion.

Barack Obama, the Democratic presidential hopeful who is also a U.S. Senator from Illinois, has backed the opponents, saying he is concerned about increased freight traffic, environmental impacts and potential delays for ambulances.

Harrison acknowledged the criticisms and left the door open for a constructive solution that will satisfy regulators.

"My personal view is that the pendulum is starting to swing a little bit. We've got some more people [who] endorse the transaction," he said. "I think people are starting to understand the not-in-my-backyard mentality. I'm cautiously optimistic that we will have this transaction completed by year-end."

During the call, CN executives said the railway had a second-quarter operating ratio of 66.3 percent, compared with 60 percent a year earlier. The operating ratio is a key indicator of productivity that measures operating costs as a percentage of revenue.

A lower number is better, so CN's efficiency worsened amid a weakness in shipments of forest products and autos. Still, the company managed to post a $459-million quarterly profit while revenue climbed 4 percent.

"All in all, pretty good results," said CN chief financial officer Claude Mongeau.

CN expects continued strength in areas such as petroleum, chemicals, metals, minerals, coal, grain and fertilizers. The railway enjoyed a record $2.16-billion profit for 2007, and analysts are forecasting a solid performance this year, despite headwinds such as the U.S. economic slowdown and flooding in the Midwest.

(This item was distributed July 22, 2008, by the Canadian Press.)

July 22, 2008


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Apparently this strategy isn't working.
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CN threatens lawsuit to get the EJ&E
The Canadian National Railway Co. said Aug 6 it will take legal action to expedite its purchase of the EJ&E Railroad, the Chicago Sun-Times reports.

Karen Phillips, a CN vice president, declined to reveal what strategies the company will take to speed up the $300 million sale of the EJ&E tracks rimming the Chicago area and cutting through several south suburbs.

"We have a few options under consideration," she said.

Phillips said CN is forced to turn to the courts because the Surface Transportation Board, the federal agency reviewing the EJ&E sale, will not commit to issuing its final decision on the purchase before Dec. 31.

She said the track's owners, U.S. Steel, informed CN in recent days that it will back out of the deal if an agreement cannot be reached before then.

"We need to know what's going to happen," Phillips said. "We have no reason to believe it is not a real deadline."

The Montreal transportation giant wants the tracks so its trains can bypass the clogged rail network in Chicago and the interior suburbs. But the plans are meeting fierce opposition from towns along the EJ&E - such as New Lenox and Frankfort - that do not want the headaches that come with extra train traffic.

Under CN's proposal, the number of trains could grow from six a day on the EJ&E in the south suburbs to as many as 34.

Suburban congressmen are hoping to block the sale by passing a bill that requires the Surface Transportation Board to take a harder look at the impacts to communities when ruling on railroad mergers and acquisitions.

In a draft report issued July 25, the board indicated a decision on the EJ&E sale could take until March. U.S. Rep. Judy Biggert (R-13th), of Hinsdale, said the threats by CN to sue should not affect the board's work.

"I don't think federal regulators should be rushed to judgement," she said. "From safety to traffic to pollution, we want to know the true costs."

The board will hold a public hearing on the sale Aug. 25 in Matteson.

Biggert said she had no idea what CN is planning to accelerate the approval process.

"We'll have to wait and see," she said. "I'm sure we will hear soon."

(This item appeared Aug. 7, 2008, in the Sun-Times.)

August 7, 2008


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CNs plan to buy EJ&E hits new snag

(Reuters circulated the following story by Allan Dowd on August 6.)

VANCOUVER, B.C. Canadian National plan to buy the Elgin, Joliet & Eastern Railroad hit new snag on Wednesday, when it failed to win more time to close the deal that has generated a storm of controversy in the key U.S. rail hub of Chicago.

The EJ&E purchase has been tied in a U.S. regulatory review, and Canadian National warned it is ready to go to court to get the transaction completed by the end of the year -- although it cannot say yet who it will take legal action against.

"We have a variety of options," spokeswoman Karen Phillips said.

Last month, the U.S. Surface Transportation Board rejected a request by Canadian National that it rule on the takeover by the end of the year. It said a pre-decision environmental review may not be completed until the end of January.

United States Steel Corp., which currently owns the EJ&E, has now refused to extend the deadline for closing the deal past the end of 2008 to meet the regulator's schedule, although it is still willing to complete it before then, Canadian National said on Wednesday.

"Therefore we need a decision in this case, and we have decided to seek legal relief to allow CN to close on the transaction prior to Dec 31, 2008," Chief Executive Hunter Harrison said in a statement.

The railway feels the regulators have already done an extensive review of the plan and can still issue a decision by the end of the year, Phillips said.

Canadian National, North America's 5th largest railway, wants to buy the 198-mile (317-km) EJ&E line for $300 million to reroute freight trains around Chicago where they now face lengthy delays in the congested rail hub.

It argues the plan will help the entire rail industry by freeing track space within Chicago that it now shares with other freight carriers and Amtrak.

But the proposal has run into stiff opposition in some suburban Chicago communities, with complaints that the increase in train traffic will cause safety problems, delay road traffic at grade crossings and reduce property values.

Opponents of the bid held a U.S. congressional hearing in the Chicago area on Tuesday to blast the plan, but supporters who say the safety concerns are unfounded boycotted the session.

A representative of the opponents had no immediate comment on CN's statement.

A US Steel spokeswoman said it would not comment on CN's statement, nor whether the political dispute played a role in its decision to not extend the deadline.

The dispute is being watched in the railroad industry, where carriers fear political opposition will block industry efforts to expand capacity to meet rising demand for both freight and passenger service.

Thursday, August 07, 2008

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