ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, May 4, 1996 TAG: 9605060032
SECTION: BUSINESS PAGE: A-6 EDITION: METRO
DATELINE: FORT WORTH, TEXAS
SOURCE: DON PHILLIPS THE WASHINGTON POST
NORFOLK SOUTHERN could be the partner the president of Burlington Northern-Santa Fe Corp. is seeking for his cross-country venture. - When Robert D. Krebs looks east these days, his gaze seems to linger on Virginia.
The president of the newly merged Burlington Northern-Santa Fe Corp., now the country's largest railroad, has made no secret of his desire to create the country's first transcontinental railroad system by linking up with a major eastern line. According to railroad and financial sources, he is looking harder at Norfolk Southern Corp. than at the other two possibilities, Conrail and CSX Transportation Inc.
Preliminary contacts have been made between managers of the two railroads, the sources said, but it is unclear where they will lead. Some speculated that Krebs will make a move sooner than might be expected given the challenge he faces combining his old railroad, the Atchison, Topeka & Santa Fe, with the much larger Burlington Northern. The two merged Sept. 22, 1995.
Norfolk Southern's spokeswoman, Magda Ratajski, said the railroad would not comment on any merger matters. That has been NS's reaction over the past few years to various rumors of its merger with other railroads, including Conrail.
Through 165 years of U.S. railroad history, there has never been a true transcontinental railroad. The Mississippi River has been a symbolic hurdle. It is clear that the first railroader to breach that barrier from Pacific to Atlantic will become a railroad legend.
But there are practical business reasons for a transcontinental merger, the main one being the opportunity to provide seamless service across the Mississippi. Because of problems that defy solution, there always are delays where railroads meet, giving trucks a big edge for time-sensitive freight. There also are personnel savings in abandoning one railroad headquarters when two lines merge.
Shippers along the 14,500-mile Norfolk Southern route would benefit from better service to western destinations, and the port of Norfolk could boom with new traffic from the west that now connects from Burlington Northern-Santa Fe to northeastern ports such as Baltimore and New York.
The 1990s have seen merger activity pick up in the railroad industry, but Burlington Northern-Santa Fe is the only successful combination so far. Earlier in the decade, Norfolk Southern failed for a third time to buy Conrail, while a proposed acquisition of the Southern Pacific Railroad by the Union Pacific Railroad has sparked a donnybrook involving rail unions, other railroads and Congress.
The Surface Transportation Board (STB), the successor to the Interstate Commerce Commission (ICC), is scheduled to decide July 3 whether to allow the UP-SP merger.
The conventional wisdom has been that either Burlington Northern-Santa Fe or the new Union Pacific - if its merger with the Southern Pacific goes through - would make a run for Conrail. Philadelphia-based Conrail dominates freight traffic from New York and other East Coast cities to Chicago and St. Louis.
But as Norfolk Southern discovered, Conrail Chairman David LeVan is determined to remain independent, and is ready to use Pennsylvania's tough anti-takeover laws to make a raid an expensive and destructive battle.
``I take companies at their word,'' Krebs said. ``Conrail doesn't want to do a merger. ... It's pretty hard to do a hostile merger in the railroad industry, especially in Pennsylvania. And we're just not interested in doing it.''
If Krebs should go for Norfolk Southern and succeed, Union Pacific and CSX likely would be forced to form a transcontinental link in defense. Analysts question whether Conrail could then hold out as a much smaller regional railroad, and say its lines likely would be divided between the two giants.
A number of railroad experts said Norfolk Southern and Burlington Northern-Santa Fe would be a good fit. Both railroads are highly disciplined operations, and likely would combine relatively easily, they said.
The opposite was true when Krebs began to combine the large but sluggish Burlington Northern with the small but tightly run Santa Fe. Although Krebs retained many Burlington Northern managers in such areas as law, he largely wiped out the top BN operating managers in favor of his own managers.
Both Burlington Northern-Santa Fe and Norfolk Southern also have the same maintenance philosophy: Spend whatever is necessary to produce a first-class physical plant.
Norfolk Southern also would provide Krebs with lots of cash, which he needs for high-cost capital projects to add badly needed capacity.
LENGTH: Medium: 86 linesby CNB