ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, January 22, 1997 TAG: 9701220053
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: GREG EDWARDS STAFF WRITER
NORFOLK SOUTHERN and CSX say they are willing to sit down with each other and work out the terms of a deal.
Rail rivals CSX and Norfolk Southern and their common takeover target, Conrail, said Tuesday they aren't concerned about comments from an influential regulator that Conrail might have to be split up as a condition of any proposed merger.
But the two giant railroads quickly reacted by saying they would be willing to meet and talk about terms of a deal.
Linda Morgan, chairman of the Surface Transportation Board, said if Conrail and CSX Corp. cannot reach a negotiated settlement with bidder Norfolk Southern Corp., the board might decide to divide Conrail's eastern U.S. assets right down the middle. The three-member board has responsibility for approving railroad mergers.
Meanwhile, NS said it would proceed today with its promised tender offer to buy 8.2 million Conrail shares at $115 apiece. That number of shares - about 9.9 percent of the outstanding common stock - is the maximum NS can buy without tripping Conrail's ``poison pill'' defense provisions. The offer expires at midnight Feb.4.
NS and CSX both reacted positively to Morgan's call for maintaining regional railroad competition as the desired outcome of the battle for Conrail.
"We've consistently supported the proposition that there needs to be balanced competition in the East," said NS Vice President Bob Fort. Fort characterized Morgan's position as being very similar to Norfolk Southern's position.
"When this is all said and done, all the parties need to get together and work out ... a competitive solution," Fort said.
NS was not surprised by Morgan's comments, Fort said. "We've talked to a lot of people in a lot of different sectors that feel the way that we do," he said. He mentioned the New York Port Authority and the state of Maryland as two entities that have expressed concern about rail competition.
But Morgan's remarks weren't specific enough to know how the federal agency might work to maintain competition, Fort said. In the past, NS has voiced a preference for the outright division of Conrail's rail lines between NS and CSX rather than the granting of trackage rights to the loser after a merger.
In a letter Tuesday, NS Chairman David Goode invited Conrail Chairman David LeVan and CSX Chairman John Snow to meet and work on an agreement.
Goode said he viewed Norfolk Southern's victory last week, when Conrail shareholders voted down a measure that would have allowed the proposed Conrail-CSX merger to proceed, as placing the responsibility on NS to work out a rail structure in the East that would be in the long-term interests of all who are served by the three companies. "I believe this can be accomplished if we sit down and try," Goode wrote.
With that said, Goode repeated earlier statements that NS believes competition can best be achieved by combining NS and Conrail and providing a competitor such as CSX with its own routes into the Northeast and mid-Atlantic so that the resulting competing rail networks are equivalent in "scope, scale and market access."
Goode acknowledged that LeVan and Snow have a different vision from his of how things should work out. Goode, however, offered to begin talks with CSX and Conrail with no preconditions other than fulfillment of Norfolk Southern's pledge that Conrail shareholders should get $115 per share for all of their stock. CSX has offered $115 per share for 40 percent of Conrail's stock and CSX stock for the remaining 60 percent.
Goode's one condition, however, might stand in the way of a meeting of the three railroads.
``We've always stated a willingness to meet with Norfolk Southern to discuss competitive issues, as long as no preconditions are attached,'' CSX spokesman Vance Richardson said. He cited as an example of such preconditions an insistence that Conrail's directors accept the shareholders' vote as an endorsement of the NS offer for Conrail.
Richardson said that CSX views the remarks of Morgan of the STB as "constructive." CSX has always been for competition, he said. "We intend to work toward a solution to provide ample competition in the East," Richardson said.
Before NS publicly released Goode's invitation to LeVan and Snow to meet, Richardson said he wouldn't rule out the possibility of CSX initiating such a meeting as well.
From a competitive standpoint, NS and CSX are evenly matched in the South and the Midwest. However, Conrail has a virtual lock on the Northeast. Without regulatory intervention, the rail company that wins the battle for Conrail will dominate the East. The Surface Transportation Board doesn't intend to let that happen, though.
Conrail and CSX aim to file their joint application with the Surface Transportation Board by early March. The board has set a 300-day schedule for consideration of the application.
The board will consider several methods of making sure that shippers in the Northeast don't suffer from lack of competition as a result of a Conrail merger.
One possibility would be the extension of so-called trackage rights, in which the losing bidder would be able to use tracks owned by the other two companies for a fee.
But the board could decide that trackage rights don't go far enough to preserve competition in the Conrail case and compel the division of Conrail between the two suitors.
Bloomberg Business News contributed to this report.
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