Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, August 4, 1994 TAG: 9408040080
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: MICHAEL STOWE STAFF WRITER
DATELINE: LENGTH: Long
James Higgins of Brown Brothers Harriman & Co. in New York said a merger would mean increased activity for both railroads and more business for Norfolk Southern's maintenance shops in Roanoke.
"I tend to believe that when it comes to things like [rail] car repairs that no one does it better than Norfolk Southern," he said.
Some job losses are inevitable if the merger goes through, Higgins said, but Roanoke's operations are in a good position to avoid cuts.
"If anything, they might be hiring more train crews," he said.
Norfolk Southern 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 its fields in West Virginia to export piers in Norfolk.
The Journal of Commerce, a New York-based business newspaper, reported Wednesday that executives from Norfolk Southern and Conrail have been negotiating a merger that would form a 26,400-mile railroad covering the entire East Coast.
Norfolk Southern's vice president for coal and ore traffic, Roanoke-based William Bales, declined to talk Wednesday about such a move.
"This is still very, very preliminary," he said. "Anything that anyone could tell you, even the chairman, would be preliminary," he said.
Jeffrey Medford, a railroad analyst with Wheat First Butcher & Singer in Richmond, said the two companies will have a tough time gaining federal approval if they reach a merger agreement. Hearings before the Interstate Commerce Commission could take up to three years, he said.
"There are lots of reasons for protest," he said. "I think it can occur, but it's not easy."
Most opposition likely would come from Richmond-based CSX Corp., a Norfolk Southern competitor on most major routes, Medford said. A spokeswoman for CSX would not comment on her company's reaction to merger talks between Norfolk Southern and Conrail.
Norfolk Southern and CSX both have tried to gain control of Conrail in the past.
The federal government created Conrail in 1973 from the remains of seven bankrupt railroads. Eight years later, Congress passed legislation to return the railroad to the private sector. Norfolk Southern's $1.9 billion bid was selected over 13 other rail companies, but it failed to gain congressional approval after Rep. John Dingle, D-Mich., chairman of the House Committee on Energy and Commerce, refused to support it.
CSX was part of an investor group headed by Morgan Stanley & Co. that tried to purchase Philadelphia-based Conrail in 1985.
Congress decided to offer Conrail's stock to the public after Norfolk Southern's bid was blocked.
That didn't end Norfolk Southern's efforts to work with Conrail. In 1992 it sold to Conrail half of its Triple Crown service, which hauls containers on both trains and trucks. The two railroads share some track.
A merger between the two companies would give Norfolk Southern much-needed access to the Port of New York and New Jersey. A merged company would extend as far west as Kansas City, Mo., and have access to all the Mississippi River gateways.
"This would be an incredibly potent transportation machine," said a written statement from Tony Hatch, an analyst with PaineWebber in New York.
The two railroads handled more than 50 percent of the coal carloads in the East last year, a statistic that bodes well for Roanoke because Norfolk Southern bases its coal marketing operations here.
Coal makes up about 33 percent of Norfolk Southern's business, compared to about 20 percent of Conrail's.
Norfolk Southern's coal revenues were down $1.2 billion - 6 percent - in 1993, but gains in chemical and intermodal business more than made up the difference. Its net income was up 7 percent.
Bales blamed the decline in coal traffic on a weak overseas market but said, "It will continue to be the most significant commodity we haul."
Both Conrail and Norfolk Southern trade on the New York Stock Exchange, and on Wednesday investors reacted as if they believed the rumored merger might happen. Norfolk Southern closed at $63.621/2, down 121/2 cents; Conrail closed at $56.371/2, up $2.121/2.
More than a million shares of Conrail stock changed hands. Norfolk Southern trading was light, with 287,300 shares moving.
Other railroad merger talks also have been under way lately with the recently announced combinations of Burlington Northern and the Atchison, Topeka & Santa Fe, and of the Illinois Central and Kansas City Southern.
Norfolk Southern Chairman David Goode was asked about the mergers in New York last month when the company announced its second-quarter earnings. He gave a noncommittal answer, a company spokeswoman said. But it came after a short but significant pause.
Another New York analyst who didn't want to be identified said a Norfolk Southern-Conrail merger would be "a tremendous plus" and only increase the amount of rail traffic coming through Roanoke.
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