CN (TSX: CNR)(NYSE: CNI) today petitioned the United States Court
of Appeals for the District of Columbia Circuit for an expedited
ruling ordering the Surface Transportation Board (STB) to render a
final decision on the transportation merits of CN's proposed
acquisition of the principal lines of the Elgin, Joliet &
Eastern Railway Company (EJ&E), to allow the transaction to
close by the parties' Dec. 31, 2008, deadline.
"Given the substantial, wide-ranging public interest benefits of
our planned acquisition of the EJ&E, we cannot permit
regulatory delay to imperil this transaction," said CN President
and Chief Executive Officer E. Hunter Harrison.
"We are convinced - and many business and community leaders
agree - that the transaction will be good for the Chicago region as
a whole. It would ease rail congestion, which is critically
important to the region's economy and its continued role as one of
America's most important transportation hubs. If unaddressed, rail
congestion threatens $2 billion of dollars of production and 17,000
jobs in the Chicago region over the next 20 years.
"Second, the transaction would benefit the environment of the
overall Chicago region. For every community along the EJ&E line
in the suburbs of Chicago that would see increased train traffic as
a result of the transaction, nearly double that number along CN
lines in inner Chicago would see decreased rail operations. In
fact, roughly 60 communities inside the EJ&E arc would benefit
from reduced train traffic as a result of the transaction. That
would mean a better quality of life for residents of the Chicago
region, with less pollution, fewer idling trains and fewer blocked
crossings."
Faced with a Dec. 31, 2008, deadline for completing its purchase
of the EJ&E, CN last month proposed a reasonable compromise to
the STB that would have allowed the agency to rule on the
transportation merits of the EJ&E acquisition while completing
its environmental review of the transaction. During this
environmental review, CN proposed to maintain an "environmental
status quo" by which CN would not shift any of its trains to the
EJ&E until that review had been completed. But the agency last
week denied CN's petition.
"It is truly unfortunate that the STB rejected CN's compromise
solution given the impending deadline on our transaction," Harrison
said. "The agency's decision - and continuing uncertainty about the
timing of the STB's final decision on the transaction - leave us no
option but to ask the court to compel a final STB decision on the
transportation merits of the acquisition. We need the STB ruling
soon so that we will be in a position to close the transaction
before year-end."
CN's petition need not preclude full environmental review of the
transaction. If it is granted, that will be a choice for the
agency. The STB would have options to assure that if CN's petition
is granted, the agency can complete its environmental review of the
transaction, including its consideration of the comments of all
interested parties and its imposition of lawful mitigation before
the transaction would be able to have any adverse environmental
effects.
"The bottom line is that the benefits to Chicago's rail network
and environment from rerouting trains off congested city and inner
Chicago lines onto the underused EJ&E are too great to see this
transaction derailed," Harrison said. "We cannot allow controversy
created in some Chicago suburbs - and the regulatory delay it has
created - to jeopardize the transaction.
"CN appreciates the concerns of suburban communities, and it
continues to make substantial efforts to address potential adverse
impacts of the acquisition. But in the end we do not believe that
concerns from a small but vocal minority of residents should take
precedence over the broad public interest and the needs of a far
greater number of communities that would benefit from the
transaction.
"The transaction is not just about CN - it's also about an
efficient Chicago rail network, a sound regional economy, and a
better quality of life for more than four million Chicago-area
residents."
The STB designated the transaction as "minor" in November 2007
because CN's application did not pose anti-competitive issues. By
statute, the STB is required to issue a final decision on minor
transactions within 180 days of accepting an application for
consideration. In its November decision, however, the STB said it
would prepare an Environmental Impact Statement (EIS) on the
transaction and that its final decision would be extended beyond
the 180 days until the completion of the EIS. The agency's Section
of Environmental Analysis began its extensive environmental review
of this transaction in December 2007.
After 10 months of review, few competition issues have been
raised, yet the STB still has not made a final determination as to
whether the transaction passes the statutory competition test.
Other, more complicated transactions reviewed by the STB have
closed within a time period comparable to what CN seeks here. In
the case of the $10-billion Conrail merger in 1997 - a transaction
that traversed 24 states and the District of Columbia, 10,500 miles
of rail lines and 2,070 grade crossings - the STB finalized its
environmental review in 11 months and issued a decision on the
transaction two months later. By contrast, CN's $300-million
transaction involves small portions of only two states, 158 miles
of rail line and a total of 99 grade crossings.
CN-EJ&E BACKGROUNDER
CN's EJ&E transaction is good for Chicago
The transaction would significantly improve the fluidity of rail
operations in the Chicago region, resulting in faster transit times
and more reliable service for rail customers. It would enhance the
competitiveness of businesses in the region that use rail service,
while bringing some relief to communities that have more than their
share of freight trains today.
The Chicago area is the transportation hub of North America.
One-third of U.S. products shipped by rail move to, from, or
through the Chicago area each year. Rail traffic in this region
touches five million jobs nationwide every year, $782 billion in
output and $217 billion in wages. (2005 CREATE Feasibility
Study)
But it can take a freight train more than 24 hours to travel the
30 miles from Chicago's north side to its south side (Howard Street
on the north and 127th Street on the south). During the same time
period, a CN freight train can travel from Chicago to New Orleans
(about 900 miles).
If Chicago regional rail capacity and congestion are not
addressed, studies suggest that the Chicago area will lose $2
billion in production and 17,000 jobs over the next two decades.
(2005 CREATE Feasibility Study)
The transaction has more neighborhood benefits than negative
impacts
The transaction would provide reciprocal environmental benefits
- for every community along the EJ&E line in the suburbs of
Chicago that would see increased train traffic, nearly double that
number along CN lines in inner Chicago would experience a traffic
decrease. That means roughly one million people would have
additional trains in their communities, but more than 2.5 million
would have fewer trains. In fact, roughly 60 communities inside the
EJ&E arc would benefit from reduced train traffic as a result
of the transaction.
CN's EJ&E transaction will advance the objectives of
CREATE
Better use of the EJ&E would provide a head start for the
Chicago Region Environmental Transportation Efficiency (CREATE)
Program. CN is committing $400 million of private-sector investment
to create capacity on the Chicago rail network and by removing CN
rail operations from downtown Chicago. The government has not
provided comprehensive funding for CREATE, however. Without such
funding or some other congestion-reducing initiative, increased
rail congestion is expected in Chicago and the inner suburbs, with
increased delays to motorists and increased train idling in these
communities. Without moving trains onto the EJ&E, Chicago will
continue to have high levels of rail operations in more
densely-populated communities and less efficient rail
operations.
CN is committed to addressing the environmental impact of the
transaction
CN has already volunteered to provide reasonable mitigation for
the significant adverse impact of the transaction, as measured by
the sound standards used by the STB in prior cases. CN has
committed roughly $40 million for such mitigation, in addition to
the $300 million it would spend to acquire the EJ&E and $100
million for integration, new connections and infrastructure
improvements to add capacity on the EJ&E line and allow network
synergies to be realized over time.
In August, CN reached an agreement with the City of Joliet - a
community along the EJ&E line - that resolves the city's
outstanding concerns related to quiet zones, operations, and
communications arising from the transaction. CN continues to
negotiate voluntary mitigation agreements with many other willing
communities along the EJ&E, and remains an active participant
in the STB's environmental review of the transaction.
CN has undertakings with Amtrak, Metra and Gary/Chicago
International Airport on infrastructure access and service matters
arising from EJ&E transaction
- CN has pledged to Amtrak and the STB that, after acquiring the
EJ&E, it would permit the federal passenger train company to
remain on approximately 11 miles of CN's St. Charles Air Line
route, following the re-routing of CN trains off that line and onto
the EJ&E, until the Grand Crossing or other alternative
acceptable to Amtrak is available. This preserves Amtrak's access
to Chicago's Union Station and enables Amtrak to continue providing
service to and from downstate Illinois cities such as Champaign and
Carbondale. CN also agreed to cap Amtrak's costs for maintaining
this line at its current levels, indexed only for inflation in
future years.
- CN is having continuing discussions with Metra and, upon CN's
acquisition of control of the EJ&E lines, has committed to
reaching an agreement that would permit Metra's proposed STAR Line
commuter service, should it receive government approval and
funding, to jointly use enhanced EJ&E rail lines, which is
Metra's preferred option. Thus, the EJ&E transaction would not
impede the STAR project. Furthermore, moving CN freight trains off
its existing lines and onto the EJ&E could make it easier for
Metra to expand North Central Service Line service to communities
such as Wheeling, Buffalo Grove, Vernon Hills and Mundelein.
- The expansion of Gary/Chicago International Airport (GCIA) can
now proceed since the signing in June of a four-party preliminary
memorandum of understanding (PMOU) between GCIA, EJ&E, CSX
Corporation, and Norfolk Southern Corporation. The PMOU provides a
comprehensive framework for relocating the nearby EJ&E line, a
long unresolved matter that had been a key concern raised in
opposition to the CN/EJ&E transaction. CN assisted EJ&E in
the negotiations and is committed to honor the terms of the PMOU
upon regulatory approval of the EJ&E acquisition and to carry
out the needed line relocation.
CN and U. S. Steel, the indirect owner of the EJ&E,
announced on Sept. 26, 2007, an agreement under which CN would
acquire most of the EJ&E for $300 million, subject to
regulatory approval by the STB. CN has committed an additional $100
million for integration, new connections and infrastructure
improvements to add capacity on the EJ&E line and allow network
synergies to be realized over time. CN has also committed roughly
$40 million to mitigate the impacts of increased train traffic
along the EJ&E. More information on the transaction, including
a map of the areas served by the EJ&E and CN, is available by
clicking on the EJ&E Acquisition icon on the About CN section
of its website
http://www.cn.ca/about/EJE/about_EJE/en_About.shtml
Forward-Looking Statements
This news release contains forward-looking statements. CN
cautions that, by their nature, forward-looking statements involve
risk, uncertainties and assumptions. In addition to the other
assumptions contained in this release, the Company believes the
U.S. economy is currently experiencing recessionary conditions, but
assumes that it will recover within the next six to nine months,
and that the global economy will grow at a moderate pace throughout
this period. The Company cautions that these assumptions may not
materialize. The Company's results could differ materially from
those expressed or implied in such forward-looking statements.
Important factors that could cause such differences include, but
are not limited to, industry competition, legislative and/or
regulatory developments, compliance with environmental laws and
regulations, various events which could disrupt operations,
including natural events such as severe weather, droughts, floods
and earthquakes, the effects of adverse general economic and
business conditions, inflation, currency fluctuations, changes in
fuel prices, labor disruptions, environmental claims,
investigations or proceedings, other types of claims and
litigation, and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the United
States. Reference should be made to CN's most recent Form 40-F
filed with the United States Securities and Exchange Commission,
its Annual Information Form filed with the Canadian securities
regulators, and its 2007 Annual Consolidated Financial Statements
and Notes thereto and Management's Discussion and Analysis
(MD&A), as well as its 2008 quarterly consolidated financial
statements and MD&A, for a summary of major risks.
CN assumes no obligation to update or revise forward-looking
statements to reflect future events, changes in circumstances, or
changes in beliefs, unless required by applicable laws. In the
event CN does update any forward-looking statement, no inference
should be made that CN will make additional updates with respect to
that statement, related matters, or any other forward-looking
statement.
CN - Canadian National Railway Company and its operating railway
subsidiaries - spans Canada and mid-America, from the Atlantic and
Pacific oceans to the Gulf of Mexico, serving the ports of
Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and
Mobile, Ala., and the key metropolitan areas of Toronto, Buffalo,
Chicago, Detroit, Duluth, Minn./Superior, Wis., Green Bay, Wis.,
Minneapolis/St. Paul, Memphis, and Jackson, Miss., with connections
to all points in North America. For more information on CN, visit
the company's website at www.cn.ca.
www.cn.ca
Contacts: CN Karen Phillips (Media) Vice-President North
American Government Affairs (202) 347-7196 CN Robert Noorigian
(Investment Community) Vice-President Investor Relations (514)
399-0052
Canadian National Railway (TSX:CNR)
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