SASKATOON (Staff) – It looks like both national railways will be staying in business in Eastern Canada for the time being.
Talks aimed at merging the rail operations of Canadian National and Canadian Pacific Ltd. east of Thunder Bay broke down last week due to a disagreement over how much each company’s assets were worth.
But in announcing it had broken off the merger discussion, CP also said it is prepared to make an offer to buy CN’s eastern rail operations.
Barry Scott, chief executive officer of CP Rail System, said when it became clear the merger talks were going nowhere, his company looked for another way to stem the flow of red ink coming out of Eastern Canada.
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“We concluded the most straightforward answer would be an offer by CP to purchase CN operations in the East and merge them with ours,” he said in a press release, adding that a definitive proposal could be developed and presented to the federal government at “an early date.”
CN responds
CN president and chief executive officer Paul Tellier said his company would respond “in due course” to CP’s purchase offer. He said the merger talks broke down because CP would not accept the extent of the cost-cutting and rationalization under way at CN.
Tellier said CN’s goal all along was to get an agreement that would benefit both CN customers and taxpayers: “Throughout we negotiated in good faith toward that goal, but it is now clear that an agreement that would meet these tests is beyond reach.”
A long history
Merger talks began in earnest in February, although the idea has been discussed for years.
The railways say they have lost a combined $2 billion on their eastern rail operations in the last five years, due to excess capacity and tough competition from trucks.
Both railways are making money in Western Canada, where most of their business involves long hauls of bulk commodities like grain, potash, coal and sulphur. Some western grain industry officials have speculated a merger in Eastern Canada might benefit western shippers, by freeing up more money for western operations and perhaps leading to lower freight rates.
There has been no suggestion that the two railways have any intention of merging or launching any buyout efforts in the West.
CP released no details about its offer to purchase, such as the price, the assets it wants to buy and the status of CN’s $2 billion long-term debt. The company did raise $500 million through a new share issue in February.
CP earned $800 million in Eastern Canada in 1993, while CN had revenue of $1.9 billion, leading some analysts to suggest that it might make more sense for CN to buy CP.
