BUSINESS

Riding the sales track

Selling CN will take layoffs and government cash

TOM FENNELL September 11 1995
BUSINESS

Riding the sales track

Selling CN will take layoffs and government cash

TOM FENNELL September 11 1995

Riding the sales track

Selling CN will take layoffs and government cash

Frank Mazzuca, the stocky, no-nonsense mayor of Capreol, Ont., is steaming mad. Standing in his furniture store, gesturing at rows of appliances, he says business has been bad ever since Canadian National Railway Co. began cutting back in the town. Ten years ago, 1,400 people worked for CN in Capreol, a small railway town north of Sudbury, but the number is down to 450 and falling. “CN is plucking us like a chicken,” complains Mazzuca. Now, with the Crown-owned railway about to be privatized, communities all along CN’s track are bracing for the axe. In fact, last week, to make the railway more attractive to shareholders, CN said it will lay off almost 5,000 of its 28,500 workers. To further woo investors, Ottawa will inject $1.4 billion into CN

to reduce its $2.75-billion debt. The cash and layoffs, says CN chief executive Paul Tellier, will make his company’s shares easier to flog. Declared Tellier: “CN is ready to privatize.” Since CN’s creation in 1919, Canadian taxpayers have pumped $96 billion into the Montreal-based railway. This year’s additional $1.4 billion, according to a preliminary prospectus filed with the Ontario Securities Commission, consists of a $900-million special share purchase and $500 million to buy the railway’s extensive property assets. CN also plans to sell off virtually all its non-rail assets, allowing the company to concentrate on its rail operations. When the job cuts and other changes are completed, Tellier said, “CN will be strictly a rail operation and nothing else.”

Analysts say that Ottawa could recoup

some of the expenditure over time by selling the real estate assets. As well, proceeds from the share issue will be turned over to the government. After the cost of the $900-million bailout is deducted, Ottawa could receive as much as $1 billion. Transport Minister Doug Young justified Ottawa’s financial package for the railway on the grounds that CN’s debt was so large that it would deter investors. Adds Tom Caldwell, president of Toronto-based Caldwell Securities Ltd: “CN’s debt was off the Richter scale.”

With its debt under control, Tellier is also taking steps to ensure that CN can operate in a more competitive environment. He plans to offer incentives to workers, including $4,000 interest-free loans to buy company shares. He also plans to offer CN’s top managers a stock option with a twist. Tellier wants to reduce CN’s operating costs to the level of major U.S. railways, and the executives will only receive options if they reach that goal.

But whether the layoffs and debt reduction will lure investors is open to question. Caldwell says that while CN is moving in the right direction, the investment community is still concerned about CN’s overcapacity problem in Eastern Canada. In many areas east of Thunder Bay, both CN and CP Rail System have lines running close together, and as a result, neither railway is satisfied with its slim profit levels in the region. Said Caldwell: “I don’t know how this gets resolved in the East.”

Meanwhile, union spokesmen say the current plan to sell CN is badly flawed and unfair to both taxpayers and workers. Bob Chernecki, assistant to the president of the Canadian Auto Workers union, which represents most of the railway workers, said he plans to meet Young to discuss the layoffs. ‘We’re going to fight like hell to save these jobs,” says Chernecki. And on the streets of railway towns like Capreol, it is disappearing jobs, not CN’s looming share issue, that are the main concern.

TOM FENNELL