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XXXXXX BROTHERS LETTERHEAD
February 10, 1998
Board of Directors
Illinois Central Corporation
000 X. Xxxxxxxxx Xxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Members of the Board:
We understand that Illinois Central Corporation ("Illinois Central" or the
"Company") proposes to enter into an Agreement and Plan of Merger (the
"Agreement") with Canadian National Railway Company ("Canadian National")
pursuant to which a subsidiary of Canadian National (the "Acquisition Sub") will
commence a tender offer (the "Tender Offer") to acquire up to 75% of the
outstanding shares of common stock of Illinois Central ("Illinois Central Common
Stock") for $39.00 per share in cash (the "Tender Offer Consideration").
Following consummation of the Tender Offer, the Acquisition Sub will be merged
with and into Illinois Central (the "Merger", and together with the Tender
Offer, the "Proposed Transaction") and upon the effectiveness of the Merger,
each outstanding share of Illinois Central Common Stock (other than shares
already owned by the Acquisition Sub) will be converted into the right to
receive that number of shares of common stock of Canadian National (the "Stock
Consideration") equal to the fraction obtained by dividing $39.00 by the Buyer
Average Closing Price as defined in the Agreement; provided that if the Buyer
Average Closing Price is less than $43.00 then the Buyer Average Closing Price
shall be deemed to be $43.00 and if the Buyer Average Closing Price is greater
than $64.50 then the Buyer Average Closing Price shall be deemed to be $64.50.
The terms and conditions of the Proposed Transaction are set forth in more
detail in the Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company's stockholders of the Tender Offer Consideration and Stock Consideration
to be received by such stockholders, taken together, in the Proposed
Transaction. We have not been requested to opine as to, and our opinion does not
in any manner address the Company's underlying business decision to proceed with
or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) such publicly available
information concerning the Company and Canadian National that we believe to be
relevant to our analysis, (3) financial and operating information with respect
to the business, operations and prospects of the Company furnished to us by the
Company, (4) financial and operating information with respect to the business,
operations and prospects of Canadian National furnished to us by Canadian
National, (5) a trading history of the Company Common Stock from 1995 to the
present and a comparison of that trading history with those of other companies
that we deemed relevant, (6) a trading history of Canadian National Common Stock
from 1995 to the present and a comparison of that trading history with those of
other companies that we deemed relevant, (7) a comparison of the historical
financial results and present financial condition of the Company with those of
other companies that we deemed relevant, (8) a comparison of the historical
financial results and present financial condition of Canadian National with
those of other companies that we deemed relevant, and (9) a comparison of the
financial terms of the Proposed Transaction with the financial terms of certain
other recent transactions that we deemed relevant. In addition, we have had
discussions with the managements of the Company and Canadian National concerning
their respective businesses, operations, assets, financial conditions and
prospects and the cost savings and other strategic benefits expected to result
from a combination of the businesses of Illinois Central and Canadian National
and have undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of
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such information and have further relied upon the assurances of management of
the Company that they are not aware of any facts or circumstances that would
make such information inaccurate or misleading in any material respect. With
respect to the financial projections of the Company, upon advice of the Company
we have assumed that such forecasts have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company
and we have relied upon such projections in performing our analysis. However,
for purposes of our analysis, we also have applied a sensitivity analysis to
certain assumptions which resulted in certain adjustments to the estimates of
the future financial performance of the Company. With respect to the financial
projections of Canadian National, upon advice of Canadian National and the
Company, we have assumed that such projections have been reasonably prepared on
a basis reflecting the best currently available estimates and judgments of the
management of Canadian National as to the future financial performance of
Canadian National and we have relied upon such projections in rendering our
opinion. In arriving at our opinion, we have not conducted physical inspection
of the properties and facilities of the Company or Canadian National and have
not made or obtained any evaluations or appraisals of the assets or liabilities
of the Company or Canadian National. In addition, you have not authorized us to
solicit, and we have not solicited, any indications of interest from any third
party with respect to the purchase to all or a part of the Company's business.
Our opinion necessarily is based upon market, economic and other conditions as
they exist on, and can be evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Tender Offer Consideration
and the Stock Consideration to be received by the stockholders of the Company in
the Proposed Transaction, taken together, is fair to such stockholders.
Xxxxxx Brothers will receive a fee upon the delivery of this opinion. In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of the rendering of this opinion. We also have performed various
investment banking services for the Company in the past and have received
customary fees for such services. In the ordinary course of our business, we
actively trade in the debt and equity securities of the Company and Canadian
National for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Xxxx Xxxxxxxxxx, a Managing Director of Xxxxxx Brothers, is a member of the
Board of Directors of Illinois Central.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
whether to accept the consideration to be offered to such stockholder in
connection with the Proposed Transaction.
Very truly yours,
XXXXXX BROTHERS
