ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, October 19, 1996 TAG: 9610210023
SECTION: EDITORIAL PAGE: A-7 EDITION: METRO
THE CSX CORP. has agreed to buy Conrail Inc., a deal whose effect could be profound on Norfolk Southern Corp., CSX's chief competitor and a major Roanoke Valley employer. Still, it's never over 'til it's over - as no one knows better than NS.
Back in the mid-'80s, NS was high bidder for Conrail, at the time government-owned, and the NS offer won the endorsement of the Reagan administration. But key congressmen, citing concern over the antitrust implications of combining two of the East's three dominant railroads, derailed the deal. Instead, Conrail was privatized as an independent entity, via a public offering of Uncle Sam's 85 percent share of Conrail stock.
The antitrust implications that so bothered Congress a decade ago have not vanished. Indeed, a CSX-Conrail amalgamation would enjoy greater dominance in the East (nearly 30,000 track miles vs. NS' 14,500) than would an NS-Conrail combine (25,500 miles vs. CSX's 18,600).
Moreover, Conrail is a far more robust enterprise today than a decade ago. Defying predictions that it would encounter trouble surviving on its own, Conrail has become a profitable enterprise with $3.7 billion in revenue last year. That profitability is reflected in a big increase in its value. The final NS offer in 1986 was $1.9 billion; ultimately, the government raised $1.65 billion from selling the line to private stockholders. Today, CSX is willing to pay a whopping $8.1 billion.
To call for thorough antitrust review, however, is not to say that proper vigilance would necessarily sandbag the deal. For starters, the antitrust concerns cited in Congress 10 years ago were exaggerated, and may have masked the essentially political nature of a decision to sell a public asset at less than market value.
Besides, the antitrust environment is changing. In the West, Burlington Northern bought Santa Fe in 1995, and Union Pacific's purchase of Southern Pacific won regulatory approval this year. As a consequence, even a combined CSX-Conrail would still be only the third largest in track mileage in the country.
More mergers and takeovers may be in store. If the CSX-Conrail deal goes through, The Wall Street Journal reported this week, analysts speculate that NS may be compelled to merge with one of the big Western lines, becoming part of the nation's first coast-to-coast railroad.
Driving the consolidation of the rail industry, and changing regulatory attitudes toward rail mergers, are the realities of a globalizing economy. Like the producers of the freight they haul, U.S. railroads are increasingly in competition not just with each other but also with their foreign counterparts. In transportation, economies of scale are crucial.
Predicting how NS will respond to CSX's takeover attempt with Conrail is guesswork. But it's a safe bet that economic globalization will continue to produce big change in America, and that Western Virginia, one way or another, will be part of it.
LENGTH: Medium: 56 linesby CNB