Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, August 23, 1995 TAG: 9508230061
SECTION: BUSINESS PAGE: B-7 EDITION: METRO
SOURCE: Bloomberg Business News
DATELINE: LENGTH: Medium
If Congress makes good on a threat to junk the U.S. agency that reviews rail mergers - the Interstate Commerce Commission - who'll rule on UP's plan?
Separate spending bills passed in the House and Senate provide a clue. Both include funds for transferring the ICC's duties to the Department of Transportation.
Lawmakers haven't reached any final decisions, though. For one thing, the ICC could conceivably survive the budget ax. And even if it doesn't, some lawmakers say the Justice Department is a better repository for the ICC's functions.
What's clear is that a rail-merger review at the DOT would look a lot like the ICC's version. Union Pacific could expect some delays, given all the fuss and confusion of closing down an agency and opening a replacement, but the basic treatment wouldn't change.
A Justice Department review, however, would be something of a wild card.
The reason: Justice is required under federal law to block a merger that reduces competition in the affected industry. For merger partners, the only way around this is to negotiate a settlement with Justice that resolves its concerns.
This could be especially pertinent to Bethlehem, Pa.-based Union Pacific and its plan to buy Southern Pacific, which is based in San Francisco, for about $4 billion, or $25 a share.
The reason: the proposal is expected to raise some anti-trust concerns. While Southern Pacific would fill gaps in Union Pacific's system, particularly in the direct-route department from the Gulf Coast to Los Angeles, the two railroads do overlap some. And that could mean less competition and higher prices for shippers.
Shipments from petrochemical refineries in Texas and Louisiana could be a particular concern, especially if Justice takes over the review.
The ICC doesn't take as close a look at competition. It follows a broader, public interest standard in which the threat of reduced competition as just one of several factors. Founded in 1887 as the nation's first regulatory agency, the ICC tries to decide if a merger would serve the public good.
The DOT would probably use the same approach. And that's a good thing, according to Ilene Gotts, a lawyer specializing in pre-merger reviews at Washington, D.C.-based Foley & Lardner.
The DOT ``will have a broader view on where the whole transportation industry is going,'' Gotts says.
Justice could misread competitive signals because of its lack of expertise in the rail market, she says. This is a danger in the fast-paced cargo market, Gotts says, where the specialists of yesterday have been supplanted by global networks of ``intermodal'' carriers swapping cargo containers from ship to railcar to truck.
If the ICC goes away, Gotts says, the best solution is to give Justice an advisory role - but give the final decision on rail mergers to the DOT. As it stands now, the ICC makes the decision with input from Justice.
What do railroads think? The industry says that keeping the ICC is the best bet. If Congress decides to junk it, though, railroads say the ICC's duties should be taken over by DOT. That would guarantee the least disruption, they say.
After all it's been through, Union Pacific wouldn't welcome any delay in its merger plans. Earlier this year, it lost a bruising fight for Schaumburg, Ill.-based Santa Fe Pacific Corp.
Burlington Northern Inc., based in Fort Worth, Texas, won that battle. It's buying Santa Fe for about $4 billion.
It may not have the last laugh, though. If Union Pacific succeeds in buying Southern Pacific, it would leapfrog the merged Burlington Northern-Santa Fe railroad and reclaim the title of the nation's largest railroad in revenue terms.
Using 1994 results, the combined revenues of Union Pacific and Southern Pacific would have been $9.5 billion. Combined 1994 sales of Burlington Northern and Santa Fe would have been about $1.8 billion less.
by CNB