ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Tuesday, March 4, 1997 TAG: 9703040088
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
Conrail's board of directors authorized new merger talks Monday as the company conceded it may not be able to meet the goals of its original agreement with CSX Corp.
The board called for a new agreement with CSX to ensure that Conrail shareholders receive $115 in cash per share, matching a $10.5 billion hostile bid by rival Norfolk Southern Corp.
Conrail said in a statement that its board was disappointed ``that recent events indicate that all the strategic goals reflected in the merger agreement with CSX may not be attainable.'' Still, the company expressed confidence of a resolution beneficial to its constituencies.
The statement made no mention of a deal being worked out between CSX and Norfolk Southern to split up Conrail and remain competitive rivals along the East Coast.
But John Snow, chairman of CSX, said he expected the new talks to ``provide a pro-competitive solution in the East.''
The plan under discussion calls for CSX to buy Conrail for $115 a share and sell about half of Conrail's routes to Norfolk Southern, a railroad industry official said Monday, speaking on condition of anonymity.
Both CSX and Norfolk Southern would gain good freight routes to the New York market. The details would have to be worked out over the next month or two, the official said.
"We are pleased with today's announcement that CSX and Conrail are negotiating to resolve the issues facing the eastern railroads," David Goode, Norfolk Southern chairman, said.
"Norfolk Southern is hopeful that CSX and Conrail will quickly reach a definitive agreement that would permit CSX and Norfolk Southern to work out a plan to restructure the rail transportation system in the East into combined Conrail/Norfolk Southern and Conrail/CSX systems."
Conrail's announcement appeared to mark the end of a six-week stalemate in what has become one of the most expensive takeover fights in railroad history.
CSX initially offered $8.4 billion, or $92.13 per share, but most recently had offered $110 per share. Norfolk Southern had offered $10.5 billion, or $115 a share.
Although Conrail's board favored a merger with CSX, Conrail shareholders refused on Jan. 17 to let CSX move ahead with its proposed takeover.
Pressure to work out a deal increased after the head of the railroad regulatory agency indicated she was prepared to impose a settlement if the companies could not reach one to preserve competition in the East. Top executives from the three companies agreed to hold talks to break the stalemate.
``It was a very bad situation,'' said Charles Vincent, a financial analyst with PNC Asset Management Group in Philadelphia. ``Shareholders basically said we don't want a merger with CSX because the money wasn't there. At that point, Conrail lost control of its destiny. There wasn't much they could do.''
Any agreement is subject to approval by federal regulators and Conrail shareholders. Vincent said a plan that preserves competition is likely to win a favorable audience with the Surface Transportation Board.
CSX and Norfolk Southern, both primarily Midwestern and Southeastern railroads, would gain good Conrail routes linking their north-south and east-west routes to the New York market now dominated by Conrail.
For the rest of the Northeast, the industry official said, the railroads are planning to divide direct access to important markets evenly, and few markets would be served by both.
News of the talks lifted the stocks of all three companies Monday on the New York Stock Exchange. Conrail jumped $7.121/2 to close at $111.621/2, CSX rose $2.87 1/2 to $49 and Norfolk Southern gained $2.75 to $93.87 1/2.
Congress created Philadelphia-based Conrail in 1976 out of six failed Northeastern railroads. Conrail operates an 11,000-mile rail freight network in 12 Northeastern and Midwestern states, the District of Columbia and Quebec.
LENGTH: Medium: 77 linesby CNB