ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, May 12, 1996 TAG: 9605100005
SECTION: BUSINESS PAGE: 1 EDITION: METRO
SOURCE: BY JIM SCHLOSSER LANDMARK NEWS SERVICE
WALKER RUCKER, WHO ONCE SAT on the N.C. Railroad board of directors, is suing to try to get Norfolk Southern to pay a higher price for using 317 miles of rails between Morehead City and Charlotte.
GREENSBORO, N.C. - Norfolk Southern Corp. this spring is to face off in federal court with an investor who contends North Carolina has given the railroad cheap use of a high-speed route.
If the railroad loses, it has said it plans to run more trains through Roanoke.
Contesting Norfolk Southern's exclusive use of the 317-mile track is Walker Rucker, whose great-great-grandfather, John Motley Morehead, a 19th-century North Carolina governor, developed the rail line.
Rucker considers the railroad Morehead's greatest contribution to his state. During the 1840s and 1850s, Morehead conceived, raised the money to build and served as the first president and chairman of the N.C. Railroad Co., which still owns the track from Morehead City on the Atlantic coast to Charlotte, by way of Raleigh and Greensboro.
In the beginning, N.C. Railroad owned locomotives, freight and passenger cars and operated trains. But for the last 101 years, the company has consisted entirely of a board of directors.
The board has leased the tracks since 1895 to Southern Railway, a predecessor of NS, which runs freight trains over the line. Amtrak operates three passenger trains on sections of the track.
For 100 years, the lease gave Southern exclusive use of the tracks for $260,000 a year, a low amount even for those times. It was later raised to more than $600,000, still way too low for Rucker. Newspapers at the time of the 1895 lease called the deal ``the crime of the century.''
When the lease came up for renewal in 1995, stockholders eagerly anticipated an amount that would reflect the true value of the railroad property. Now, it appears the courts may be the one to decide if the new lease reflects true value.
Later this spring, a federal judge in Raleigh is to hear Rucker's suit challenging the quorum at the meeting when the lease was approved.
He contends no quorum was present at the shareholders' meeting because he organized a shareholders' boycott to prevent a quorum. Without one, the vote on the lease is void, Rucker says. The board says a quorum was present, and the agreement stands.
NS declined comment on the matter. Spokesman Bob Fort said the company, by policy, does not comment on pending litigation.
Rucker was a member of the N.C. Railroad board until he resigned in a huff some years ago. The board represents the railroad's public and private shareholders. The only public shareholder is the state of North Carolina, which owns 75 percent of the company's stock. Private shareholders, including Rucker, 72, hold the rest.
Rucker is furious because the agreement gives Norfolk Southern a 30-year lease at an annual rental fee of $8 million, a figure that Rucker calls ``absurdly low'' in his suit. The lease also provides for a 20-year renewal option. He believes $30 million would be a more reasonable amount for such a valuable route through the heart of North Carolina.
With 2.5 percent of N.C. Railroad's closely held stock, Rucker is the third largest private shareholder. The second largest is NS, which obviously favors the lease.
The railroad's largest private shareholder - Greensboro-based insurance giant Jefferson-Pilot Corp. - sides with Rucker in the dispute. Rucker says the meager $8 million lease will keep the value of private stock shares low for many years.
One compromise Rucker proposes calls for the majority shareholder - the state - to buy out the private shareholders at a price that reflects the value of the railroad. He believes $65 a share would be reasonable. That would make Rucker's holdings worth $1.6 million.
But North Carolina Gov. Jim Hunt favors the $8 million lease. He and the railroad board admit that the rental figure is on the ``low end'' but appropriate when all factors are considered.
One of the main factors he and other supporters of the lease cite is that no other railroad expressed interest in leasing the tracks. Furthermore, NS indicated if the price wasn't right, it would consider using alternative lines it owns to haul freight through North Carolina.
John McNair III, the retired chairman of Winston-Salem-based Wachovia Bank and current chairman and president of N.C. Railroad, says the board's goal in seeking the new lease was to determine the best interest of the shareholders, private and public. He thinks the lease meets that goal.
``One of our prime considerations was finding a dependable source of continuing income so the shareholders would get a continuing flow of revenue,'' McNair says, adding that dependable source is NS.
Rucker dismisses as a bluff Norfolk Southern's threat to run trains on an alternate route. That route follows a line from Roanoke south to Winston-Salem. Another line then goes from Winston-Salem to Charlotte, where it ties in to Norfolk Southern's tracks south to Atlanta.
Fort, the NS spokesman, said the company would not comment on Rucker's charge that the railroad is bluffing about moving its freight traffic to another route.
The track between Roanoke, Winston-Salem and Charlotte is twisting and not designed for high-speed freight trains like those that now run from Greensboro to Charlotte over the leased N.C. Railroad tracks.
Rucker says it would cost the railroad millions to upgrade the alternative lines to make them equal to the Greensboro-to-Charlotte track.
He also argues says it would be cheaper for the railroad to pay a $30 million a year lease. Even if NS upgraded the alternative line and gave up the Morehead City-to-Charlotte track, N.C. Railroad could become an active railroad and run trains over the route, Rucker says. ``Everyone is scared of Southern Railway,'' he says, using the railroad's old name before it merged in 1982 with Norfolk and Western Railroad.
As for Hunt and the board's claim that the lease is in the best interest of the state, Rucker says he's not willing to see the holdings of shareholders sacrificed on the altar of state patriotism. He says it's not just the stock of well-to-do people like himself at stake. Pension plans and widows have invested in N.C. Railroad stock through the years.
Lawsuits don't come cheap. Rucker says he has spent $50,000 on legal fees. He insists this is not a fight he wanted.
``I've put a lot of time and money into this,'' he says. ``I intend to see it to conclusion.''
LENGTH: Long : 123 lines ILLUSTRATION: PHOTO: Walker Rucker's suit in federal court questions whetherby CNBthere was a quorum at the shareholders' meeting when the lease was
renewed in 1995. The dealgave Norfolk Southern Corp. a 30-year lease
at an annual rental fee of $8 million, a figure that Rucker calls
``absurdly low'' in his suit. color.
MIKE HEFFNER/Landmark News Service