TORONTO
-- Canadian National Railway Co. and Burlington Northern Santa Fe Corp. plan to
join forces in a C$28-billion ($19-billion) business creating North America's
largest railroad, the companies said early Monday morning, news services
reported
The new company, to be called North
American Railways Inc., will be based in Montreal and will boast almost 50,000
miles (80,465-km) of track stretching from Halifax on the Atlantic coast to
Vancouver on the Pacific and southward to New Orleans and Los Angeles.
The combination of Montreal-based
Canadian National, Canada's biggest railway and Fort Worth, Texas-based
Burlington Northern, the No.2 U.S. railroad, comes just six months after CN
closed its 1998 acquisition of Illinois Central Corp. in a $3-billion
transaction.
Under the terms of the deal, CN
shareholders will receive 1.05 CN voting shares for each CN common share and
the choice of either 1.05 North American Railways common stock or 1.05 CN
shares exchangeable for the equivalent of North American Railways. The CN
voting share will trade together with the exchangeable share as one security.
Burlington Northern shareholders will
receive one North American Railways common share and one CN voting share which
will trade as one issue.
CN closed at C$44.20, up C$1.30 on the
Toronto Stock Exchange on Friday. In New York, Burlington Northern closed up
9/16 at $28-3/8.
"This is good news for
shareholders, employees, customers and shippers," Paul Tellier, CN's
president and chief executive said in a release. "It gives shareholders
ownership in a rail enterprise that, based on its size and reach, is uniquely
positioned to expand its market share and improve its profitability."
The deal, which has been approved by
both boards, is expected to close by mid-2001. It must receive the approval of
both groups of shareholders and the blessing of U.S. and Canadian regulatory
agencies.
Once completed, Robert Krebs, chairman
and chief executive at Burlington Northern, will become a nonexecutive chairman
of North American Railways and CN. CN's Tellier will become president and chief
executive of the new railway and CN.
The 15-member board, with a Canadian
majority, will consist of six members from each current board, as well as three
additional people. The new appointees include blue chip corporate figures such
as Laurent Beaudoin, chairman of aerospace and transportation equipment maker
Bombardier Inc., Steven Burd, chairman and president of food retailer Safeway
Inc., and Jean Monty, president and chief executive at BCE Inc., Canada's
largest telecommunications group and most widely held company.
"The combination of CN and BNSF
builds the first North American railroad by uniting the most efficient Canadian
railroad with the most efficient railroad in the United States," the
companies said in a joint release.
"The new railroad, which will be
the largest rail network in North America, will have a strong balance sheet,
substantial free cash flow, a shared commitment to consistent customer service,
a common operating system, and a well-balanced revenue portfolio."
CN's union with the No. 2 U.S.
railroad comes just weeks after Tellier told the Canadian Railway Club in a
Montreal luncheon speech that Canadian railroads must face the rising
competition from large U.S. rail carriers. Some of those U.S. railways are
two-and-a-half times larger than CN, and generate the financial returns
necessary to justify significant capital expenditures, Tellier said.
"Our ability to meet the
competition of these rail giants is important to Canada. It's a critical factor
in Canadian productivity," he said in the speech.
CN's partnership with Burlington
Northern is the second deal in recent years that has seen the Canadian company
forge ties with an American rival, broadening both its corporate girth and
transcontinental rail network. Less than six months ago, it acquired
Chicago-based Illinois Central Corp. in a transaction that included a $2.4
billion share transaction and the assumption of $600 million of debt.
Once owned by the Canadian government,
CN became a publicly traded company in November 1995 in a C$2.3-billion ($1.6
billion) stock issue, then the biggest ever in Canada. It is the largest of
Canada's two national freight railroads -- the other being owned by energy,
transportation and hotel conglomerate Canadian Pacific Ltd. -- and is one of
the top 10 railways in North America.
Forging ahead under Tellier with a
restructuring in which it streamlined its network and workforce and invested in
new technology, CN has become a darling of the stock market because of its
solid profit performance and improving prospects. In mid-October, CN reported
third-quarter earnings of C$199 million, or 96 Canadian cents a share, compared
with a loss of C$205 million, C$1.06 a share, after a special accounting
charge, in the year earlier period.
Burlington Northern also posted
impressive third-quarter earnings in October. It reported
adjusted profits of 70 cents a share on revenues of $2.35 billion,
compared with a profit of 66 cents on revenues of $2.29 billion the previous
year.
Including special items consisting of
a gain in connection with prior period rail line sales partially offset by
costs related to those line sales, net income for the third quarter was $348
million or 75 cents per diluted share.