ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Sunday, March 2, 1997 TAG: 9703030080
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
SOURCE: The Washington Post
IF COMPLETED, the deal now being negotiated would give each suitor half of Conrail and create rail competition in the Northeast again.
The big three Eastern freight railroads are nearing a deal to split Conrail lines between Norfolk Southern Corp. and CSX Corp., leaving two major railroads from the Gulf Coast to the Canadian border, according to sources in government, the financial community and the railroad industry.
The sources stressed that negotiations, although largely complete, are at a sensitive stage and could still fall apart. One question is whether the Conrail board of directors will approve it. But the sources said if the plan is approved, it could be announced this week.
A final agreement would end one of the century's most bitter and costly rail merger battles and would write the final chapter in one of the most successful federal bailouts of an industry: Congress's creation of Conrail in 1976 from the lines of the Penn Central and other bankrupt Eastern and Midwestern railroads.
If the plan is in turn approved by the Surface Transportation Board, as industry observers say is likely, Conrail's Eastern monopoly will be broken, bringing multiple-railroad competition to major sections of the Northeast for the first time since the New York Central and Pennsylvania Railroads were merged 29 years ago into the Penn Central. The failing Penn Central was consolidated into Conrail on April 1, 1976.
The tentative plan is said to be complicated, with twists that may surprise even those who have followed the situation closely. But basically, it would divide Conrail roughly by half while giving all railroads equal access to major terminal areas, such as the New York port and industrial area and the New Jersey ``chemical coast.''
Rather than face a monopoly, shippers in these major industrial areas could see full competitive service from Norfolk Southern, CSX and other railroads such as the aggressive regional railroad New York, Susquehanna & Western and possibly the Canadian railroads.
Walter Rich, president of the Susquehanna & Western, said Saturday that if the reported agreement is true, ``I think that is the best solution for us. I think there needs to be three railroads in New York.'' His railroad is now blocked from offering direct service to hundreds of New York-New Jersey shippers.
Bob Fort, Norfolk Southern public relations vice president, Tom Hoppin, CSX public affairs vice president, and Christine Wagner, Conrail executive director of media services, declined to comment for this story.
In general, the plan would divide Conrail in the East this way:
Norfolk Southern would get the main line of the former Pennsylvania Railroad from eastern Pennsylvania to Pittsburgh and west.
NS also would get most of the former Reading Railroad, giving it lines from New York and Philadelphia to its key Hagerstown, Md., connection to the south. CSX would get a line north from Philadelphia to the New York area.
CSX would get most of the main line of the former New York Central, a high-speed track up the Hudson River to Albany and then west to Buffalo. CSX would also get direct access to New England with the ex-New York Central line to Boston. Norfolk Southern would get Conrail's ``southern tier,'' a slower mountainous line from New York to Buffalo through Binghamton, N.Y. Whether and how Norfolk Southern would get into New England is unclear.
Susquehanna & Western would retain its rights to operate over the southern tier, and possibly other connections that would allow expansion of its current operations.
The plan reached its current stage after a three-way battle led by the chairmen of the three railroads, David Goode of Norfolk Southern, John Snow of CSX and David LeVan of Conrail. Snow and LeVan announced a merger agreement Oct. 14, sending a shock through the industry. Nine days later, Goode announced a hostile offer, beginning a bidding war that substantially ran up the price. Goode's latest bid of $115 a share amounts to $10.4 billion. Snow's cash-and-stock offer is slightly less.
The three agreed on Jan. 22 to hold talks about a possible deal.
Although Snow and LeVan were allied, sources said they often seemed to be in greater conflict with each other than with Goode. Snow said privately from the beginning that Conrail would have to be divided to produce two systems that would be roughly equal in competitive strength. But LeVan adamantly insisted that Conrail remain intact, and his lobbyists told politicians and shippers repeatedly over the last few weeks that they would be better off with Conrail in a monopoly situation in the East.
A Capitol Hill source said that although LeVan now appears to have lost, his stockholders still will get $115 a share, double the price of the stock on the day the proposed merger was announced.
``LeVan is nutty like a fox,'' the source said. ``He cut the best deal imaginable for his shareholders.''
LENGTH: Medium: 88 linesby CNB