CN Rail and Joliet reach agreement on EJ&E bid

TORONTO (Reuters) - Canadian National Railway (CNR.TO) reached an agreement with an Illinois city over concerns surrounding its planned purchase of the Elgin, Joliet & Eastern Railroad.

The agreement resolves the outstanding concerns the city of Joliet had related to quiet zones, operations and communications surrounding the acquisition, CN said on Monday.

The company said that as part of the agreement it will make a significant investment in track improvements and roadway features along the route through Joliet within three years of final approval of the acquisition.

Canadian National wants to buy the EJ&E line for $300 million to reroute freight trains around Chicago to alleviate lengthy delays in the congested rail hub.

The proposal has come up against opposition in some suburban Chicago communities that argue the increase in train traffic will cause safety problems, delay road traffic at grade crossings and reduce property values.

Canadian National, North America's fifth largest railway, said the conditions of the negotiations with Joliet will depend on approval of its bid by the U.S. Surface Transportation Board, which is currently reviewing the proposal.

The board has encouraged voluntary agreements between Canadian National and the communities, the company said.

Last month, U.S. regulators rejected a request by Canadian National that the board rule on the takeover by the end of the year, and said a pre-decision environmental review may not be completed until the end of January.

Canadian National subsequently said that it was ready to go to court to get the transaction completed by the end of the year. United States Steel Corp (X.N), the current owner of the EJ&E, has refused to extend the deadline for closing the deal past the end of 2008 to meet the regulator's schedule.

($1=$1.05 Canadian)

(Reporting by Leah Schnurr; Editing by Scott Anderson)