ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, November 9, 1996 TAG: 9611110038
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: GREG EDWARDS STAFF WRITER
Norfolk Southern Corp. boosted its cash offer for Conrail on Friday to $110 per share, raising the price it would pay for the Northeastern freight railroad by roughly $1billion.
NS Chairman David Goode said the new offer is a demonstration of his company's "very strong commitment" to acquire Conrail.
Norfolk Southern's offer is now worth slightly more than $10billion and is $10 per share better than NS' Oct.24 bid for Conrail. NS' move follows CSX Corp.'s decision this week to improve its offer for Conrail.
Both Norfolk Southern of Norfolk and CSX of Richmond are bidding for Philadelphia-based Conrail because of its dominant position in the heavily populated Northeast with lucrative rail routes.
NS is doing everything in its power to make sure Conrail's board of directors gives shareholders a chance to consider Norfolk Southern's better offer, Goode said in an interview Friday.
He declined to address the likely consequences if NS fails in its attempt to merge with Conrail. "We will not fail," he said. "We are not in this thing to lose."
CSX and Conrail jointly announced Oct.15 that they had reached an agreement for CSX to acquire Conrail for a combination payment of cash and CSX stock in a deal worth roughly $8.4billion.
Then Wednesday, in response to Norfolk Southern's counteroffer, CSX increased the cash portion of its offer for Conrail from $92.50 to $110 per share. However, the total value of the new offer is worth about the same as CSX's original offer because CSX stock has dropped in price.
CSX stock closed Friday at $44.25 a share, unchanged from Thursday. Conrail common shares rose to $96.37 1/2, up $3.37 1/2. Norfolk Southern stock closed at $86.62 1/2, down 37 1/2 cents. All three stocks trade on the New York Stock Exchange.
Independent directors on Conrail's board wrote a letter to Norfolk Southern's board Thursday, saying they had carefully considered the merits of merging with NS before unanimously approving a merger with CSX on Oct.14. Although they have high regard for NS, a merger with CSX is in Conrail's best interests, the Conrail directors said.
After Norfolk Southern increased its offer Friday, Conrail's board advised shareholders to hold off until it has a chance to study Norfolk Southern's new offer and respond.
Previously, Norfolk Southern asked a federal court in Philadelphia to remove barriers in Pennsylvania law and in the CSX-Conrail agreement to a Norfolk Southern merger with Conrail. A hearing on that lawsuit is now set for Nov.18.
Goode said that in his own conversations with Norfolk Southern's shareholders, he has reminded them that the chance to buy Conrail is a good one for NS. Even at $110 a share, the return prospects for NS shareholders are "excellent," he said.
Early on in an NS-Conrail merger, cash flow and earnings per share would grow, Goode said. NS shareholders, he said, have been very supportive of the plan to buy Conrail.
It is important for both Virginia and Roanoke that Norfolk Southern's bid for Conrail succeed, Goode said.
Adding Conrail to the NS system would greatly strengthen both railroads, be good for shippers who are the railroad's customers, and provide growth opportunities for the company and the communities it serves, he said.
In part, NS wants to acquire Conrail to improve its business of hauling highway trailers and containers between the South and Northeast. That would allow NS to capture more of that business now going to trucking companies. Improving that business will be good for communities like Roanoke, lucky enough to be located on the major north-south rail corridors, Goode said.
James Higgins of Brown Brothers Harriman & Co. in New York said this summer that such a merger would mean more business for NS maintenance shops in Roanoke. Some job losses are inevitable if the merger goes through, he said, but Roanoke's operations are in a good position to avoid cuts.
"If anything, they might be hiring more train crews," he said.
NS moved its headquarters from Roanoke more than a decade ago. But with 3,300 workers, the company still employs more people in the Roanoke Valley than anywhere else along its routes.
The rail company operates maintenance shops in Roanoke for its locomotives and rail car shops that rebuild its coal hoppers. The company operates about 100 trains a day through Roanoke, hauling coal from West Virginia to export piers in Norfolk.
The danger of CSX winning the battle for Conrail is that a CSX-Conrail merger would decrease rail competition in the Northeast, hurting shippers and the public, Goode argued. Such a merger, he said, would create a lot of problems that would need to be fixed.
"I can't understand," Goode said, "why [the Conrail board] wouldn't be interested in a combination with Norfolk Southern, which would create the finest rail competition in the East."
Norfolk Southern's offer is about $17 per share better than the CSX proposal, based on CSX's recent closing price.
The spread between the bids may be too big for CSX and Conrail to ignore, some analysts said.
``I wouldn't be surprised if we see another bid from CSX,'' said Sam Peltzman, an economist at the University of Chicago, who studies the transportation industry.
Bloomberg Business News contributed to this story.
LENGTH: Medium: 100 lines ILLUSTRATION: GRAPHIC: Chart: Conrail schedule. color. KEYWORDS: MGRby CNB