Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, August 3, 1994 TAG: 9408040018
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
SOURCE: Journal of Commerce NOTE: below
DATELINE: LENGTH: Medium
A merger would combine the predominantly north-south Norfolk Southern with the east-west Conrail, with lines stretching from Chicago to Boston and from the Canadian border to the Gulf of Mexico.
Executive conversations leading to creation of the super-regional railroad have been under way for as long as six months, The Journal of Commerce has confirmed.
The talks predate the recently announced combinations of Burlington Northern and Atchison, Topeka & Santa Fe, and of the Illinois Central and Kansas City Southern.
If the talks are successful, Norfolk Southern would acquire Conrail, which controls access to markets the Norfolk-based carrier considers essential to its growth.
Neither railroad would confirm or deny the existence of merger talks.
``I can't comment on it,'' said Magda Ratajski, Norfolk Southern vice president of public relations.
``Conrail does not comment on such matters,'' said Robert Libkind, a Conrail spokesman.
The combined company would generate more than $7.1 billion in operating revenue, based on 1993 data. They accounted for 24.6 percent of industry revenue.
The two railroads handled more than 50 percent of coal carloads originated in the East last year.
A merger would create a strong strategic alliance and is not viewed as a reaction to recent mergers by other railroads.
(In the Roanoke Valley, Norfolk Southern operates maintenance shops for its locomotives and rail car shops that rebuild its coal hoppers. It also operates a regional headquarters and bases its coal-marketing operations in Roanoke. The company operates about 100 trains a day through Roanoke, hauling coal from its fields in West Virginia to export piers in Norfolk.
(Norfolk Southern has about 3,300 employees in the Roanoke Valley, generating an annual payroll of about $135 million, according to the company's most recent statements.)
``Let's face it, everyone is talking to everyone else in the railroad industry right now,'' said a Norfolk Southern executive, speaking on condition of anonymity.
Norfolk Southern does not have access to the Port of New York and New Jersey over its own lines, so it must use a cumbersome route from Buffalo, N.Y., over tracks of the Delaware & Hudson Railway unit of CP Rail System and the New York, Susquehanna & Western Railway.
Conrail has the preferred service routes between Chicago and New York.
A merged Norfolk Southern-Conrail would have access to all the Mississippi River gateways between the East and the West and would extend as far west as Kansas City, Mo.
It would have connections with all of the Western rail systems.
The Norfolk Southern-Conrail talks were not surprising. In 1992, Norfolk Southern sold half of its Triple Crown service, which hauls containers on both trains and trucks, to Conrail.
Wall Street analysts who were willing to comment like the idea of putting Norfolk Southern and Conrail together.
``The character of management of these two companies is very similar,'' said James Higgins of Brown Brothers Harriman & Co. ``They're both driven by efficiencies. They're both strong, free-cash-flow generators, very intent on holding down capital.
``There is a tremendous amount of sheer operating strength at these two companies. They'd be a grand combination. There's power in it for a lot of good backhaul business. A lot of Conrail's business is west to east, and the ability to move from the eastern stretches of their business down into Norfolk Southern territory provides balance.''
``It would not surprise me if there were more railroad mergers announced before the end of the year, because once the pot was stirred by Burlington Northern and Santa Fe and then spiced up by the Illinois Central-Kansas City Southern announcement, we believe the aroma has become irresistible to the remaining chefs,'' said Michael Lloyd of NatWest Securities Corp.
Steve Lewins, a transportation analyst with Gruntal & Co., said he thinks further consolidation could be ahead.
``Brown Brothers has a board member on Norfolk [Southern] and another on Union Pacific. If this happens, that would suggest that UP might start talking to Norfolk and Conrail, and it might result in a breakup of UP into two pieces, UP Resources and UP Rail'' with the railroad going with Conrail-NS, he said.
``I'm not surprised that Norfolk would be interested, but what does Conrail get out of it?'' said Scott Flower, a rail analyst for Kidder, Peabody & Co. ``The firm that would face a tougher competitive environment would be CSX.''
Monday, Conrail canceled a rail inspection trip scheduled for analysts in September, saying it didn't want to put company business cars out on the railroad during a period of congestion.
``That suggests a tremendous amount of congestion,'' an analyst said Tuesday. ``Now, I wonder if that's the real reason.''
by CNB