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Regulators approve CN’s U.S. shortline bid

Canadian National’s (CN) bid to streamline its traffic to U.S. ports by buying a Chicago-area shortline has won last-minute approval from the U.S. Surface Transportation Board (STB).

CN, since September 2007, has had a US$300 million bid pending to buy the Elgin, Joliet and Eastern Railway Co. (EJandE) from U.S. Steel.

But the deal has been subject to a year-end deadline, as U.S. Steel reportedly wouldn’t agree to allow CN to amend their deal in a way that would allow the two firms to close the sale if it didn’t get STB approval until sometime after Dec. 31 this year.

EJandE is a Class II railroad with 198 mainline miles of track circling Chicago from Waukegan in the north through to Joliet, Ill., Gary, Ind., and South Chicago. CN expects the line to “improve the fluidity” of its operations by allowing its through traffic to bypass the city, and fill the “missing link” between CN’s eastern, western and southern rail networks.

That, in turn, would improve operations on the CN system and the rest of the Chicago rail network by moving CN trains out of the urban core to EJandE lines on the outskirts of the Chicago area, CN said previously, when it still expected approval for the deal by mid-2008.

Since then, CN has been negotiating agreements with communities along the line to mitigate the effects of increased rail traffic. The company on Tuesday signed a mitigation agreement with the village of Mokena, Ill., east of Joliet, bringing its total to 10 such agreements with communities in Illinois and Indiana.

But the approval, which CN announced Wednesday in a release, comes with conditions beyond what the Canadian railway was expecting to have to meet.

“While we are pleased that the STB has approved the transaction, we are nonetheless disappointed that the STB has mandated significant additional mitigation beyond the recommendations provided in the final environmental impact statement issued by the STB’s section of environmental analysis with respect to the grade crossings in Lynwood and Aurora,” CN CEO Hunter Harrison said in the release. “We are carefully reviewing the STB’s decision.”

CN said Wednesday that the STB’s decision will take effect Jan. 23, and the company “expects to be in a position to close on the transaction shortly thereafter.”

CN on Tuesday estimated its total mitigation program for the EJandE deal will cost the company over US$60 million, not counting US$20 million in consulting fees for the regulator’s environmental review of the deal and US$100 million in other proposed improvements to the line.

CN said it’s also reached an deal with Amtrak on its continued access to and from Chicago’s Union Station for downstate Illinois service and has also signed onto a four-party preliminary memo of understanding on a rail line relocation required for the expansion of Gary/Chicago International Airport.

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