Illinois Central, Canadian National Railways Join Forces

Canadian National Railway Co. on Tuesday agreed to acquire Illinois Central Corp. for about $2.4 billion, the first cross-border merger of two large railroads and what is likely to be the last major North American railroad merger for many years.

The companies, which combined would have almost $4 billion in annual revenue and 24,600 miles of railroad, would form a 18,742-mile system stretching from both coasts of Canada to the Gulf of Mexico. The acquisition is being described by the railroads as a “three-coast strategy.”

The U.S. railway system has gone through an intense period of mergers, the latest being the pending division of Philadelphia-based Conrail between Norfolk, Va.-based Norfolk Southern and Richmond, Va.-based CSX Corp. But the climate for mergers has turned sour with the severe service problems that beset the giant Union Pacific system after it absorbed Southern Pacific last year.

Canadian National stretches across Canada from Vancouver, British Columbia, to Halifax, Nova Scotia. It once was government-owned but has gone private. New management has slimmed down the system and transformed it from a sluggish operation to a profitable company.

Illinois Central, once called the “Main Line of Mid-America,” operates a core route from Chicago to New Orleans. It, too, has been transformed into one of North America’s most efficient railroads, although it is small compared with other large U.S. railroads.

Canadian National agreed to pay $39 a share for Illinois Central, or roughly $2.4 billion, 75 percent in cash and 25 percent in Canadian National shares.