Canadian National/Illinois Central Filing Urges U.S. Regulator To Approve CN/IC Merger Transaction, Deny Interveners' Requests For Conditions.

MONTREAL--(BUSINESS WIRE)--Feb. 22, 1999--Canadian National Railway Company (CN) (ME:CNR) (TSE:CNR) (NYSE:CNI) and Illinois Central Corporation (IC) said today they are urging the U.S. Surface Transportation Board (STB) to recognize the merits of their merger transaction and to approve it without any conditions sought by interveners.

In a joint brief filed with the STB on Feb. 19, CN and IC reiterated that their transaction fully meets the public interest standards for rail mergers in the U.S. The two railroads emphasized that the STB should deny requests for merger conditions sought by parties attempting to frustrate new rail competition or to address issues unrelated to the merger.

The brief stated that CN/IC's application for removal of certain trackage rights limitations at Springfield, Ill., should also be granted because it is in the public interest.

CN and IC said their transaction is supported by more than 200 shippers and 40 public officials. CN and IC also stressed that many who initially expressed opposition, or sought conditions, have agreed to settlements resolving their concerns or have otherwise withdrawn their requests, including five railroads and the City of Chicago. And no shipper, government entity, employee, labor organization, community or environmental group has presented any substantial argument that the transaction itself will harm the public interest.

The railroads have concluded implementing agreements with the Brotherhood of Railroad Signalmen and Brotherhood of Maintenance of Way Employes, which fully support the transaction.

CN/IC's brief said the railroads' merger will enhance the benefits created by the 15-year marketing alliance launched by CN, IC and Kansas City Southern Railway Company in April 1998. The alliance, which did not require STB approval, today is providing coordinated interline freight service between Canada, the U.S. Midwest, the U.S. south and access to Mexico. The companies' coordinated service does not extend to traffic movements where the two of them provide direct rail service.

The STB will hear oral arguments on the transaction March 18, 1999, in Washington, D.C. The agency will vote on the transaction March 25 and issue a written decision reflecting its March 25 vote by May 25. CN and IC filed a formal application with the STB on July 15, 1998, seeking regulatory approval of CN's acquisition of IC and the integration of the companies' rail operations.

CN and IC said the basic issue before the STB is whether their transaction, as proposed, is consistent with the public interest. "That issue should be easy to resolve because there is no serious question that the transaction is consistent with the public interest and would impose no significant negative impacts on competition, the environment or labor," the railroads said.

The railroads said the CN/IC transaction meets the five public interest standards administered by the STB in ruling on rail mergers:

- The transaction would enhance the adequacy of transportation to

the public. It responds directly to shipper requirements for

improved rail service to handle the rapidly growing volume of

post-NAFTA north-south traffic. The combined CN/IC network would

extend integrated, single-line service for numerous customers;

increase their routing options and gateway choices; and offer

them new sources of supplies and parts inventories, as well as

new outlets for finished products. Improved equipment

utilization, streamlined traffic handling and other operating

efficiencies arising from the integration of CN and IC would

offer shippers faster transit times and improved reliability;

- The entirely end-to-end transaction would increase competition

and have no adverse effects on competition. It would greatly

increase competition with the four large integrated U.S. rail

carriers in the north-south corridor. CN, with about 1,150 route-

miles in the U.S., and IC, with approximately 3,370 route-miles,

meet at only one place - Chicago. There is no overlap in the

railroads' service territories, and their merger would not

eliminate competitive options for any shipper. Instead, the

transaction would improve those options by enabling shippers to

extend their competitive reach into new markets;

- Adverse labor impacts resulting from the transaction are minimal,

and are appropriately mitigated by the STB's standard labor

protection provisions in merger cases;

- No other rail carriers are seeking inclusion in the transaction;

- CN/IC can readily absorb the increase in total fixed charges

arising from the transaction.

CN and IC also said the STB's environmental staff has concluded that the transaction - if mitigated by certain modest conditions recommended by the staff and acceptable to CN/IC would have no significant adverse environmental effects, and would in fact lead to net environmental benefits, including lower fuel consumption, reduced air pollution emissions, and less highway traffic and fewer highway accidents. In short, CN and IC said, the transaction's negative effects are virtually non-existent, while its benefits to the public are substantial.

Canadian National 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.

Illinois Central, whose principal subsidiary is the Illinois Central Railroad Company, 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.