OTTAWA – The federal government is considering a $1.4 billion CP Rail offer to purchase the Eastern Canadian railway operations of CN Rail.
The offer made last week was CP’s latest alternative to failed merger talks last summer. The federal government, which owns CN, is expected to respond within weeks.
A CP spokesperson said one result would be lower costs on eastern freight movement and possibly lower costs to Prairie grain farmers. They see hundreds of thousands of tonnes of their grain shipped east by rail each winter, when the St. Lawrence Seaway is closed.
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“If we can reduce costs, we can offer shippers like the grain industry a lower cost base,” said CP spokesman Tim Hum-phries.
Transport minister Doug Young has yet to comment on the proposal, which ministerial staff last week said was being studied.
One CP spokesperson said this is the best offer CN will receive. The money could be used by the crown corporation to reduce its multi-billion dollar debt, while allowing Ottawa to gain ground in its announced policy of “commercializing” much of its transportation network.
However, CN has insisted in the past that its money-losing eastern operations are worth close to $3 billion.
“There is book value and there is realistic market value based on expected returns,” said Humphries. “We think this is a realistic offer.”
Under the CP buy-out proposal, CN would maintain its separate western operation and its line to Thunder Bay.
It also could compete for eastern traffic and CP would act as a fee-for-service carrier for CN eastern traffic. The effective date of purchase would be Jan. 1, 1996.
CP Rail System chair Barry Scott said if the sale is approved, many eastern lines will be abandoned, and some would be turned over to short line operators. Employee positions would also be eliminated by the end of the decade.
Jobs would be lost
He estimated that 2,500 people, from a work force of more than 19,000, would lose their jobs by the year 2000.
Both railways have complained for years that while they make money on their western bulk freight cargoes like grain, they lose money on eastern operations.
Months of negotiations over a merger of eastern operations collapsed last summer when the two were unable to come to terms.
CP officials said last week they would be able to finance the $1.4 billion from existing sources and operations within the company.
