ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Thursday, January 30, 1997 TAG: 9701300049
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
DATELINE: NEW YORK
People in the Roanoke Valley shouldn't worry about the outcome of Norfolk Southern's battle for Conrail and its impact locally, NS Chairman David Goode said Wednesday.
Norfolk Southern Corp. will not allow its battle with CSX Corp. of Richmond for control of Conrail Inc. to end in a situation that will damage NS, Goode said. "We'll be there to protect the interests of Norfolk Southern shareholders, the communities we serve and our employees; and where there are a lot of employees [as in] Roanoke, we're working on behalf of all those constituencies to protect them," he said.
Goode made the comments after its quarterly meeting with New York securities analysts, whose opinions of transportation companies often sway Wall Street and individual investors.
Goode added that the rail car shops in Roanoke are among the best in the world. "I would not be too concerned about the fate of those," he said.
NS Vice Chairman Henry Watts said every town along a Norfolk Southern track has a stake in the outcome of the company's fight for Conrail, the dominant railroad serving lucrative northeastern markets, including New York.
That's particularly true in the area of economic development, Watts said. Businesses that are looking for locations to expand want to be near railroads that have a competitive market reach, Watts said.
Goode and other NS officials meet every three months with representatives of Wall Street investment firms on the day the Norfolk-based railroad reports its quarterly revenues and profits. NS reported Wednesday that in last year's fourth quarter and for all of 1996 the railroad continued its now long-term trend of producing record revenues and profits. It managed to maintain a record pace despite having faced much higher diesel fuel prices late in the year.
The $75 million that Norfolk Southern has committed to its fight for Conrail is not reflected in the 1996 financial figures. Of that total, more than $57 million has gone to secure financing for the deal.
"The $75-plus million speaks of great significance of our seriousness," said Hank Wolf, executive vice president for finance.
The real danger to Norfolk Southern in the Conrail battle - of being shut out of Northeastern markets - has already been averted since CSX and Conrail have conceded that competition between railroads must exist in the Northeast after the merger fight is over, said Tony Hatch, an analyst with NatWest Securities Corp.
The CSX-Conrail concession followed a strong statement earlier this month by Linda Morgan, chairman of the federal Surface Transportation Board, that the government is prepared to step in to ensure competition in the Northeast if the three railroads involved cannot agree among themselves on a competitive structure. The concession also follows Conrail's shareholders overwhelming defeat of a proposal on Jan.17 that would have allowed the cash portion of the two-part CSX-Conrail merger to move forward.
The risk of Norfolk Southern losing access to the Northeast may never have existed because of the STB's position on maintaining competition; but in October, when CSX and Conrail announced their merger plans, the perception was that NS faced that risk, Hatch said. Hatch thinks NS will come out a better railroad whether they win or lose Conrail. "Now, we're talking about gains and what level of gains," he said.
NS's Goode and officials from CSX and Conrail have a meeting scheduled for Friday to see if they can come up with a voluntary plan for a division of Conrail that can be submitted for the government's approval. NS is going into that meeting committed to two principles, Goode said: that Conrail shareholders be paid $115 a share for all of their stock and that whatever agreement is arrived at provides balanced competition between CSX and NS, the two remaining major railroads in the East.
Goode declined to answer several questions about what kind of division of Conrail's territory that NS would prefer, saying an answer would be inappropriate in advance of Friday's meeting. Goode said that whatever division is worked out would have to offer a fair market share to each side and access to major Northeastern markets. Ownership of track and not trackage rights alone would be necessary in such an agreement, he said.
He was confident that a division of Conrail could be developed that would benefit both NS and CSX, Goode said.
If Friday's meeting fails to lead to an agreement on Conrail, NS is committed to continue its fight for Conrail, Goode said. Part of that continued effort would be to replace Conrail's board with one that would be more favorable to NS's interests, something that some Conrail shareholders have also shown an interest in, he said. "Norfolk Southern will not go away," he said.
NS, which has sought a marriage with Conrail for a decade, was stung when CSX and Conrail boards announced on Oct.15 that they had agreed to merge the two railroads. NS had tried to buy Conrail when the federal government considered selling the railroad to a private bidder in the 1980s. NS thought it had a deal to buy Conrail in 1994 but Conrail's board decided to keep the company independent.
In early October, only two weeks before CSX and Conrail announced their merger plans, NS's Goode phoned Conrail Chairman David LeVan about Norfolk Southern's continued interest in the company. NS's $115 per share offer for Conrail is valued at roughly $10.4 billion and CSX's part cash and part CSX stock offer for Conrail is worth roughly $9.5 billion or about $106 per share.
Conrail was created by an act of Congress in 1973 from the Penn Central and other bankrupt Northeast railroads. The freight railroad serves 12 states, the District of Columbia and the Province of Quebec. Conrail became an independent company in 1987 when the federal government sold its holdings of Conrail stock to the public.
LENGTH: Long : 106 lines ILLUSTRATION: PHOTO: Norfolk Southern Chairman David Goode smiles afterby CNBmeeting with analysts at the Chase Manhattan bank headquarters
Wednesday. color.