Stephen Rees's blog

Thoughts about the relationships between transport and the urban area it serves

“The Pig That Flew”

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“The Battle to Privatize Canadian National”

Harry Bruce Published by Douglas & McIntyre 1997

I picked this up in our local library. It is all very positive – and it’s idea of success is that the IPO was heavily oversubscribed and the share price rose dramatically once it was traded.

“Privatization insiders would later argue that the five phenomena that made the deal so marketable were: the pending improvement in the regulatory environment [Canada Transportation Act 1996]; the arbitrated labour settlement that took account of the “economic viability” of the railways; the appointment of one of the best boards in Canada; the financial restructuring that included lopping $1.4 billion off the corporation’s debt [largely in return for land]; and the extent to which Tellier, Sabia and their team had already proved they had the drive to bulldoze through a U.S.-style turnaround”

Actually the book shows that it was only a battle against the unions and the media. The former defending some quite extraordinary contract arrangements, the latter simply being highly sceptical. The US railway investors were quite keen, and it makes me wonder why the privatsiation team tried so hard to sell stock once they understood that demand would exceed supply. Arguably the stock was initially underpriced, and the underwriters made out like bandits.

The behaviour of Tellier and his colleagues is reported to have been quite exceptionally unCanadian. People actually losing their tempers! Tsk tsk.

The story now needs to be updated. The continued pressure to cut costs has some people wondering if it has been done at the expense of safety, especially in view of the number of disastrous derailments. The take over of BC Rail showed that CN management really did not understand what a challenge this railway would be to operate and Transport Canada has intervened to limit train lengths and insist that locomotives have dynamic brakes. Too late to save the fish in the Cheakamus River of course.

CN was able to shed most of its social responsibilities – the operation of passenger trains went to VIA many years earlier (though apparently few commentators realised that) as has the need to provide freight service to small communities. Maybe CN think of their responsibility to protect the lives of their crews and the environment has been reduced too?

CN Train Wreck

But at least Canada can point to this privatisation as one that worked out well financially – unlike that of railways in the UK .

Written by Stephen Rees

December 6, 2006 at 10:00 am

One Response

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  1. If one deducts the billion that paid down longterm debt, the privatization netted the Canadian taxpayers 1 billion. 70% of the shares went to US investors. Current market cap 31 billion. So basically 3 cents on the dollar transfer of Cdn assets to US private interests, Bill Gates being the largest single shareholder. As Henry Mintzberg would point out, running a public interest crown entity vs a for-profit company are not comparable. The “pig” was politically driven, creating jobs in the Maritimes and Quebec, servicing locations such as NWT or Churchill that are not profitable. Shedding that mandate is of course more profitable, but does it lead to a good transportation system in Canada? Doesn’t appear to.

    d brown

    December 3, 2010 at 3:39 pm


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