Canadian National/Illinois Central Filing Says CN/IC Merger Transaction is Consistent With Public Interest and Merits Approval by U.S. Regulator.

MONTREAL--(BUSINESS WIRE)--Dec. 16, 1998--CANADIAN NATIONAL(ME:CNR.) (TSE:CNR.) (NYSE:CNI) CENTRAL ILLINOIS(ME:CNR.) Canadian National Railway Company and Illinois Central Corporation said today in a regulatory filing that their merger transaction is consistent with the public interest, meeting the standards for approval administered by the U.S. Surface Transportation Board (STB).

In their STB filing rebutting comments and responsive applications from parties challenging the CN/IC merger transaction, CN and IC said: "The transaction is indisputably 'consistent with the public interest' and should be approved ... Hundreds of parties, mostly shippers, but including governmental entities, labor organizations and competitors, recognize the overall contribution that the transaction will make to the public interest ..."

CN and IC said their application for removal of certain trackage rights limitations at Springfield, Ill., should also be granted because it is in the public interest. CN President and Chief Executive Officer Paul M. Tellier and IC President and Chief Executive Officer John D. McPherson said again: "We strongly believe that our proposed transaction -- the acquisition of control of IC by CN and the integration of their rail operations -- will promote the public interest.

"CN/IC, the end-to-end combination of two highly complementary railroads, will strengthen the U.S. and North American transportation system. It will be strategically important for shippers. It will promote the growth of north-south trade. It will help assure that our railroads can respond to market challenges through growth and increased financial strength. "Yet it portends no anti-competitive effects, abandonments, service reductions or interruptions, capacity constraints, or significantly adverse labor, safety or environmental effects."

CN and IC said a number of parties are seeking conditions on STB approval of the merger transaction. Some are trying to use the STB proceeding to obtain private gains or preferential treatment. Others are attempting to delay increased competition, while other parties are pursuing remedies to some pre-existing conditions unrelated to the transaction.

CN showed that Union Pacific Railroad Company has not sustained its claims about a marketing alliance signed by CN, IC and Kansas City Southern Railway Company, which were made by UP in connection with its opportunistic efforts to secure haulage rights on IC's traffic- rich line between Baton Rouge and New Orleans, La. Contrary to UP's claims, the CN/IC/KCSR marketing alliance does not constitute common control of the three railroads.

The CN/IC transaction will enhance the benefits created by the CN/IC/KCSR marketing alliance, which did not require STB approval and which today is providing coordinated interline train service between Canada, the U.S. Midwest, the U.S. South and access to Mexico's largest railroad.

CN and IC also rejected Canadian Pacific Railway Company's attempt to use the STB proceeding to obtain an economic benefit unrelated to any effect of the merger transaction. In its responsive application, CPR is asking the STB, as a condition of approving the CN/IC transaction, to require CN to divest its interest in the Detroit River Tunnel, which it jointly owns with CPR. (The CNCP Detroit-Niagara Partnership, held 50/50 by CN and CPR, owns 100 per cent of the stock of Detroit River Tunnel Company, the corporate owner of the tunnel.)

CN and IC dismissed as groundless CPR's allegation that CN may use its current ownership position in the tunnel to block any future expansion by CPR of the tunnel's capacity that is in the interest of the partnership.

CN and IC noted that CPR's divestiture request is outside the STB's jurisdiction because the partnership and all but a small portion of the assets at the center of CPR's application to the agency are within Canada, not the United States.

CN and IC said CN is prepared to sell its interest in the Detroit River Tunnel on a negotiated basis at a fair price and not under duress.

CN and IC also urged the STB to turn down CPR's demand for a special investigation of the CN/IC/KCSR marketing alliance because they have provided the STB and the parties with substantial information about the alliance and shown it will benefit the public interest. CN and IC stated they have fully and properly presented the public benefit of the transaction and marketing alliance.

CN and IC rejected comments from the City of Chicago, which has asked the STB to require, as a condition of its approval of the transaction, that CN/IC establish an entirely grade-separated route across Chicago -- but not one that enters the downtown area. CN and IC said the city's request is part of an ongoing, pre-transaction effort to close the St. Charles Air Line and is unrelated to the merger transaction. CN and IC pointed out that the transaction will result in fewer trains operating on the Air Line and offers the potential of reducing the overall amount of CN and IC freight traffic moving through the City of Chicago.

CN and IC continue to negotiate with Chicago in an effort to respond to local concerns while protecting the companies' commercial interests.

CN and IC have forged settlement agreements that addressed issues raised by several parties about the transaction. As a result of these agreements, The Burlington Northern and Santa Fe Railway Company, a unit of Burlington Northern Santa Fe Corporation; CSX Corporation and its rail subsidiary, CSX Transportation Inc.; and Norfolk Southern Railway Company, the chief subsidiary of Norfolk Southern Corporation, did not file or withdrew their requests for conditions.

CN operates approximately 15,300 route-miles of track in eight Canadian provinces and six U.S. states, with principal routes to every major metropolitan area in Canada and to the major U.S. rail hubs of Buffalo, Detroit, Duluth/Superior, Wis., and Chicago. CN is North America's only transcontinental railroad, and Canada's largest railroad serving all five major Canadian ports on the Atlantic and Pacific oceans and the Great Lakes.

IC operates approximately 3,370 route-miles of track running north-south between Chicago and the Gulf of Mexico, and east-west between Chicago, Iowa and Nebraska. IC's main north-south route reaches the major metropolitan areas of St. Louis, Memphis, Tenn., New Orleans and Baton Rouge, La. IC's east-west route extends from Sioux City and Council Bluffs, Iowa, to Chicago.