Filed by Canadian National Railway Company
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Canadian National Railway Company
Commission File No. 333-94399
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The time for this rail
combination is now
Notes for remarks by
Paul M. Tellier
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CANADIAN NATIONAL RAILWAY COMPANY
at the Vancouver Board of Trade
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Vancouver, B.C.
March 3, 2000
(Please check against delivery)
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Thank you for this opportunity to talk to the Board of Trade once again.
Last December, CN announced a proposed combination with the Burlington Northern
Santa Fe Railroad - the BNSF.
I want to take this opportunity to talk about why this combination is good for
British Columbia and Canada. I also want to discuss some of the concerns raised.
The transaction
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Let me first give you the details of the combination.
CN and BNSF will combine in a new entity, called North American Railways, Inc.
The provisions of the CN Commercialization Act will apply:
o The headquarters of North American Railways, Inc. will be in Montreal.
o The majority of its board members will be resident Canadians.
o No one will be able to own more than 15 per cent of the voting shares.
o It will operate in both official languages.
This combination joins strength to strength. CN and BNSF are the two most
efficient railroads in North America. Both CN and BNSF have a strong focus on
customer service. And we're both financially strong. In fact, CN has just
completed a landmark year.
This combination will enable both CN and BNSF to operate as an integrated North
American rail network. We will keep and draw on the strong management capability
of both companies. We will have an all-star management team.
Two operating companies will remain intact and separate: CN and BNSF. They will
each maintain independent identities and continue to manage their own current
systems. But they will share a railroad network with a continental reach, with
critical new north-south corridors.
This is not the "Americanization" of CN. This is turning CN into a major North
American carrier while retaining its strong Canadian identity.
When the combination is completed in 2001, British Columbia will be served by a
railroad that directly links shippers and receivers throughout Canada and 33
states and through multiple gateways to Mexico.
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Strategic rationale
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Why are we taking this very bold step? Why now?
We've looked to the future. We saw what kind of transportation service Canada
and British Columbia would need to compete.
We saw the trends:
o North-south trade is growing at double-digit rates.
o Companies locate facilities in different countries. B.C. firms are very much
a part of this trend: Westcoast Energy, Jim Pattison Group, Finning
International. They all have operations outside of Canada. Our customers are
no exception: Weyerhauser, Alcan, Champion, Cargill. Without an excellent
North American transportation service, these customers will not be able to
compete. Or they will not be able to afford to remain in Canada.
o At the same time, our customers are integrating and consolidating to obtain
greater efficiency and economies of scale - this is especially true in the
forestry sector.
And there's another trend. The rail industry itself is undergoing a revolution.
We're becoming more efficient. We're providing better service. We're able to
offer significant advantages.
By combining with BNSF, CN remains ahead of the curve in the revolution of our
sector.
We will have the efficiencies of scale. We will have the financial weight to
continually improve our system. We will be able to provide the long hauls that
will help our customers succeed in their end markets - whether in Canada, the
United States or Mexico.
Good for British Columbia and Canada
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What are the advantages of such a combination for British Columbia and Canadian
shippers? Let me list five examples.
1. New north-south routes into the United States, and additional gateways to
Mexico.
2. Improved transit times as a result of operating a combined North American
system. For instance, the B.C. traffic into California could benefit from
transit times that are 12 to 24 hours faster.
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3. More flexibility to avoid congestion. We showed with our merger with
Illinois Central how it was possible to move more efficiently through and
around cities like Chicago.
4. Greater ability to fund capital expenditures that provide better service.
5. Responsive customer service through a larger network. CN has set the
benchmark in the rail industry for customer focus. We will share our best
practices over a much larger network.
What it means for British Columbia
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Let me get more specific about what this combination will mean for British
Columbia. Even with its strong ties to Asian markets, this province sends nearly
63 per cent of its exports to markets in the United States. The CN-BNSF
combination provides opportunities to increase exports that move by rail even
more.
Think what that single-line service means for the forest sector, for example.
Today, reaching the Pacific states and the Southwest by rail requires one -
sometimes two or three - interchanges. With every interchange, rail service
becomes less reliable.
And that is why single-line service is the key to a revolution that's going on
in the rail industry. Single-line service is seamless and safer. By keeping
shipments on a single rail network, shippers don't lose time through switching
and interchanging.
On a single line, we can manage rail cars better. We reduce car cycle time, and
this increases the capacity of our system. We've already seen this happen since
our merger with Illinois Central.
And a single-line service also means our computer tracking system can tell
exactly where a shipment is, and when it will arrive. We can take whatever steps
are necessary to make that shipment arrive on time. Our objective is to run a
railroad with the efficiency of a conveyor belt.
So imagine single-line service that works like a conveyor belt all the way from
producers in Terrace and Prince George to the markets in San Francisco, Los
Angeles, and Houston.
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BC Rail
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Imagine how it will improve markets for the customers of BC Rail as well. We
estimate that about 45 per cent of BC Rail's business is interchanged with CN,
and this business is very important to us.
By combining with BNSF, CN can offer BC Rail and its customers access to new
markets. Interchange just once, at Vancouver, and products from Fort Nelson,
Chetwynd, and Mackenzie can reach California, Colorado, and Texas, saving at
least one day in transit time.
The CN-BNSF combination will offer a competitive option to B.C. lumber and panel
shippers who now use more than 40,000 trucks each year to cross the Canada-U.S.
border.
Further benefits
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Another benefit to this combination is that it puts us in a better position in
the U.S. There are four very big U.S. railroads. Even the smallest of them is
almost twice as big as CN. By combining with BNSF, we bring competitive
economies of scale to CN's operations.
It means we use our cars and locomotives more efficiently. More cars will be
available for B.C. customers. Because we will get them back sooner.
Another benefit involves Canada-U.S. customs procedures. Think of what efficient
north-south rail service means at the border crossings. While the trucks line up
at customs, railroads use their advanced information systems to whisk shipments
through.
And think of what it means to B.C. taxpayers and motorists as trains take trucks
off south-bound highways.
By providing competition for trucks, the CN-BNSF combination will bring
significant benefits to B.C. shippers, to drivers, and to the taxpayers who must
fund the highway infrastructure.
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Ports
What will the CN-BNSF combination mean for British Columbia ports?
Let me start by congratulating the Port of Vancouver for an outstanding year in
1999. This is Canada's largest port and the largest port on the
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West Coast. Last year saw 27 per cent growth in traffic, and three new shipping
customers.
Last year, the Port achieved a milestone: one million standard twenty-foot
containers passed through Vancouver and DeltaPort. This is just the beginning.
In the foreseeable future, the Port could handle two million containers. But I
believe the sights should be set higher still. But if Vancouver is to continue
to grow, some things must happen.
First, the railroads must continue to improve the Port's reach into the
interior. Over the past five years, CN has invested $1.1 billion in its rail
network in Western Canada - the network that links the ports of Vancouver and
Prince Rupert to the continent.
Traffic on CN's east-west network, with its terminals in Vancouver and Prince
Rupert, has been growing at almost five per cent per year. This is very
important business to us. We will continue to grow that business. And the
network north of the 49th parallel, with its lower grades over the Rockies and
its low operating costs, will be key to growing that business.
We extended Vancouver's reach beyond Chicago with our merger with the Illinois
Central Railroad.
And we have found innovative solutions to make our B.C. network more efficient.
Last year, for example, we began a partnership with CP Rail to share our lines
through the Fraser Canyon: CN lines moving west; CP lines moving east.
So the railroads have been doing their part. The other factors are up to the
Port, its employees, and the other industries that serve it.
First, the Port must increase its capacity, and CN feels that DeltaPort is the
appropriate focus for new investment in facilities.
Second, Vancouver must send a message to the world that it is open for business
24 hours a day, seven days a week, 365 days a year - with no surprises.
Think of a shipper in Japan or Korea considering where in North America to land
a container. He reads in the morning paper about work stoppages or lock-outs in
Vancouver. His decisions become much easier - and Vancouver loses. So does CN.
Following a combination of CN and BNSF, shipping lines and shippers will
continue to make their decisions based upon such considerations as port
productivity and the cost of doing business.
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Where railroads can make a difference, however, is by ensuring that their
networks are state-of-the-art and they can track shipments accurately.
No service disruptions
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I have now begun to touch upon some of the concerns that people in B.C. and
elsewhere in Canada have raised about the proposed combination.
To those who worry about the future of West Coast ports, my reply is that port
competitiveness is mostly in the hands of those who manage and work at the
ports.
To those who worry about CN's east-west network, I reply that the Canadian
network has inherent strength, such as lower grade and shorter distances.
But one of the main concerns we keep hearing is the fear of service disruptions.
You may recall that disruptions in the U.S. hurt shippers when Union Pacific
took over Southern Pacific, and Norfolk Southern and CSX took over the Conrail
lines.
But this is what I say to those concerns: I do not expect any service
disruptions with our combination. And here are three reasons why.
First, CN and BNSF join together end-to-end. There is virtually no overlap and
no need for restructuring. We had a similar perfect fit with our merger with
Illinois Central last summer, and it went ahead flawlessly.
Second, both CN and BNSF already share the same basic information technology
platform - one that we bought from Santa Fe before it merged with Burlington
Northern.
And third - and this is unprecedented in the rail industry - CN and BNSF are
willing to provide written guarantees to our shippers that service will be as
good as - or better than - the service they now enjoy.
This is a new standard of service commitment for the industry. We are willing to
do it because we believe no shipper should have to bear the risk that a
combination might lead to costly and infuriating service disruptions. We believe
that we have the responsibility to bear that financial risk. We are in the best
position to assess it and, by bearing it, we have the financial incentive to
make sure that service runs smoothly.
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Availability of choice
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Some shippers are concerned that the combination means a loss of competitive
options.
I have already described how the combination will open new options: rail will be
more competitive against trucks. But to those who are concerned about losing
options, we have made a commitment in our guarantee.
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We guarantee that, where shippers now have a choice between two rail carriers,
they will still have choice. This combination is not about removing competition.
It's about making sure that competition prevails. It's about making sure that
railroads are more competitive. And it's our customers who will benefit from
this - and the shipping community as a whole who will benefit in the long run as
competition across the transportation industry increases.
Now is the time
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Some of our competitors in the rail industry have taken out full-page ads to
warn against what a CN-BNSF combination might mean. They do not make the case on
the facts of our transaction. Instead, they raise fears about what might happen
if they were to merge.
Again, last weekend, a newspaper reported that Canadian Pacific's CEO, David
O'Brien, told analysts that, if the CN-BNSF transaction is approved, CP would
have to seek an alliance or merger partner.
Let me be very clear: there is nothing in our combination that requires any
other North American railroad to respond with a merger or alliance of its own.
For any of these other railroads, the rationale for a merger should be the same
that has guided our combination: how can railroads provide better service to
customers?
Other railroads have not been making their case on the need for better service.
Instead, they say that now is not the time for another rail combination.
This is my reply. Now is the time for a rail combination that brings better
service to shippers.
Now is the time to improve north-south rail corridors. Now is the time to open
new gateways to Mexico. Now is the time for extended reach to shippers, opening
new markets for them. Now is the time to apply the best traffic tracking system
available on the most extensive network.
There is no bad time for a good combination. We believe the strengths of the
CN-BNSF combination are readily apparent. This is good for CN, its employees and
shareholders. It's good for our customers. It's good for British Columbia and
for Canada.
Thank you.
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Canadian National Railway Company spans Canada and mid-America, from the
Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of
Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile,
Ala., and the key cities of Toronto, Buffalo, Chicago, Detroit, Memphis, St.
Louis, and Jackson, Miss., with connections to all points in North America.
CN and North American Railways, Inc. have filed a registration statement on Form
F-4/S-4 with the United States Securities and Exchange Commission (SEC) in
connection with the securities to be issued in the combination. The registration
statement has not been declared effective. This filing also includes the
preliminary proxy statement for the shareholders' meetings to be held for
approval of the combination. Investors should read this document and other
documents filed with the SEC by CN, BNSF and North American Railways, Inc. about
the combination because they contain important information. These documents may
be obtained for free at the SEC's Web site, WWW.SEC.GOV. Other filings made by
CN on Forms 40-F and 6-K may be obtained for free from the CN Corporate
Secretary's office at (514) 399-6569. Other filings made by BNSF on Forms 10-K,
10-Q and 8-K may be obtained for free from the BNSF Corporate Secretary's office
at (817) 352-6856. For information concerning participants in CN's solicitation
of proxies for approval of the combination, see "Certain Information Concerning
Participants" filed by CN under Rule 14a-12. For information concerning
participants in BNSF's solicitation of proxies for approval of the combination,
see "Certain Information Concerning Participants" filed by BNSF on Schedule 14A
under Rule 14a-12.
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Additional copies of this speech are La version francaise de cette
available from: allocution est disponible de :
Canadian National Canadien National
Telephone: (514) 399-7212 Telephone : (514) 399-7212
Fax: (514) 399-5344 Telecopieur : (514) 399-5344
www.cn.ca www.cn.ca
Aussi disponible en francais.
