(The Canadian Press circulated the following on April 9, 2009.)
TORONTO — GO Transit has agreed to buy a strategically important rail line that runs through Toronto from Canadian National Railway (TSX:CNR).
The provincially owned commuter service will pay $160 million to buy the track from the Montreal-based company, which owns most of the Toronto-area track that GO uses.
CN spokesman Mark Hallman said the sale is part of developing a “strong partnership” between the rail company and GO while improving shareholder value for CN.
“We think that we can still maintain our freight service to our customers along this line and also work with GO through this transaction to help them develop their basic commuter rail expansion strategy,” Hallman said.
“We think this helps them and certainly it helps us as well.”
David Newman, an analyst with National Bank Financial, said the rail line may be strategically important for GO but it’s a “non-core asset” for CN.
“They do this on an ongoing basis with assets or lines that are not as strategically important, they will sell them,” Newman said.
He added that CN is one of the “best in class” when it comes to its operating ratio, balance sheet and free cash-flow generation, so the sale wasn’t financially necessary for the company.
“They’ve already got a fairly healthy balance sheet, but obviously in this kind of market every bit of cash helps,” he said.
GO currently runs its Georgetown commuter rail service over the line, which runs from near the lakeshore in downtown Toronto along a northwestern route to connect with CN track in Brampton, Ont.
GO said it will be better able to build new infrastructure and expand its operations by owning the rail corridor.
It said Via passenger trains and CN freight trains will continue to use the line after the ownership changes.
CN said in January it plans to focus on increasing productivity and controlling costs in 2009 by focusing on its core assets.
Late last year, the rail operator purchased the Elgin, Joliet and Eastern railway for US$300 million, allowing the railway’s freight traffic to bypass the congested Chicago area.
Trains carrying freight from West Coast port cities like Prince Rupert or Vancouver can now save time going directly to major U.S. cities like Memphis.
The company also announced in February that it’s collaborating with Norfolk Southern Corp. (NYSE:NSC) – one of the biggest railways in the United States – to create what they’re calling a MidAmerica Corridor for freight traffic.
The two companies will share track along the corridor to speed the movement of rail traffic between the U.S. Midwest and U.S. Southeast.
CN’s fourth-quarter net profit was $573 million or $1.21 per diluted share compared with a profit of $833 million, or $1.68 per share, in the same 2007 period when it had a $284 million tax recovery and a $64 million gain from the sale of its headquarters in Montreal.
Revenues in the final quarter of 2008 grew 13 per cent to $2.2 billion, mostly helped by foreign currency.
The company also boosted its quarterly dividend by 10 per cent
CN’s volume was down 9.8 per cent in the quarter as the economic slowdown meant fewer goods being shipped, and CN said it plans to focus on increasing productivity and controlling costs in 2009.
Canadian National is one of North America’s largest railways, with a network of tracks in Canada and the United States.
CN shares were up $1.25 cents to $47.21 in Wednesday trading on the TSX.