Illinois Central brings CC&P back into the fold - the railroad reacquires Chicago Central and Pacific for about $157 million total - Brief Article

Railway Age, Feb, 1996

Western railroad map makers should keep their options open. It wasn't a blockbuster, such as Burlington Northern-Santa Fe or Union Pacific-Southern Pacific, but it was a bemusing announcement that Illinois Central will acquire--actually, reacquire--Chicago Central & Pacific, the former IC (and Illinois Central Gulf) Iowa Division between Chicago and Council Bluffs and Sioux City.

IC proposes to buy the stock of CC&P Holdings, Inc., "for an enterprise value of $139 million plus approximately $18 million of capitalized lease obligations." CC&P Holdings' principal subsidiaries are the Chicago Central & Pacific and the Cedar River Railroad. IC's then-parent company sold off the Iowa Division in 1985 for $75 million as part of a downsizing. IC said it planned to file its purchase application with the U. S. Department of Transportation Surface Transportation Board in January; assuming regulatory approval for this end-to-end consolidation, IC would close the transaction in third-quarter '96 and begin coordinated operations in the fourth quarter.

IC's stand-alone growth plan (Plan2000) projects revenues to increase to $800 million by the end of 1999, with the operating ratio dropping to less than 60. IC sees CC&P's own growth, plus IC-CC&P synergies, contributing an additional $85 million to $90 million in annual revenues. CCP revenues last year were about $76 million, and its operating ratio was 70.

IC President and CEO E. Hunter Harrison said, "We have discussed publicly over the last few years our willingness to consider continuous rail lines for potential joint venture opportunities and/or acquisition. The CC&P represents an excellent fit for the IC [and] an excellent investment opportunity for IC's shareholders."

IC Senior Vice President-Marketing and Sales Donald H. Skelton called the marketing opportunities of a combined IC-CC&P system "exciting." He added: "One of IC's winning strategies over the last several years has been its willingness and ability to treat other railroads as customers in marketing its services. Indeed, that is a continuing strategy in IC's Plan2000. While these relationships take time to nurture and develop, they represent potentially significant sources of revenue and can expand the effective reach of the IC into markets we do not directly serve. In the IC-CC&P combination, we will explore potential new strategic partnerships that could be developed over time."

John D. McPherson, IC senior vice president-operations, said CC&P's consistent track improvement program "is reflected in a solid physical plant supporting a 40-mph operation. Nearly all of CC&P's track was recently reballasted. Track and equipment have been well maintained and will require no extraordinary capital expenditures. CC&P's total annual capital expenditures in a range of $5 million to $6 million is quite reasonable."