In an aggressive move to increase its market share in the United States, Canadian National Railway Co. has reached an agreement to acquire Wisconsin Central Transportation Corp. for $1.2 billion in cash. The deal is subject to approval by regulators, but each company's board of directors has already agreed to the plan.

In a prepared statement, both CN and WCTC said government regulators should treat the transaction as a "minor one." If the U.S. government were to instead treat the transaction as a major merger—which could subject it to new rules governing rail mergers proposed by the U.S. Surface Transportation Board—CN has reserved the right to terminate the purchase agreement without penalty.

Canadian National's caution is understandable. Last year, CN failed in its bid to merge with the Burlington Northern Santa Fe railroad in a $6.2 billion proposal that would have created the largest railroad in North America. Prompted by protests from shippers that had experienced service disruptions after other rail mergers, the STB imposed a moratorium on the mergers of Class I railroads while it developed new guidelines for regulating such proposals.

Wisconsin Central, based in Rosemont, Ill., is composed of Class II and Class III railroads with 2,850 miles of track and trackage rights in Wisconsin, Illinois, Minnesota, Michigan's Upper Peninsula, and Ontario. The acquisition would connect Chicago and Superior, Wis., to the Canadian railroad's network.

CN President and Chief Executive Officer Paul M. Tellier says that under a 1998 agreement, WCTC already hauls cross-border freight for CN between Superior and Chicago. "Efficiencies that will result from the acquisition offer the prospect of enhancing CN's top-line growth in the domestic U.S. marketplace and benefiting customers with improved through service at the busy Chicago gateway," Tellier says. "The CN/WCTC transaction is a simple, straightforward, pro-competitive, end-to-end combination. Not a single 'two-to-one' point will arise in the United States as a result of the merger, and there will be no other significant adverse impacts on competition," he adds. He has also assured shippers that service levels on the combined CN/WC would be equal to or better than current service levels.

WCTC President and Chief Executive Officer Thomas F. Power Jr. says his company approached CN with the merger deal to enable the U.S. railway, founded in 1987 and pieced together from rail lines divested by Class I railroads, to join a broader North American rail network. "CN is a natural fit for WC, offering it the best long-term prospects. CN ownership will protect the integrity of Wisconsin Central's rail network," he says. "CN's best practices offer additional opportunities that Wisconsin Central could not achieve on its own. We admired CN's flawless integration of Illinois Central and expect an equally smooth merger in our case."

In a related matter, CN has announced that it will build a major intermodal terminal near its Halton Subdivision, about 20 miles west of Toronto. The new terminal will initially employ about 100 people when it opens in late 2002 and will occupy about 100 acres of land. The new facility will help the railroad cope with 13-percent annual growth in its intermodal traffic.