THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Wednesday, August 3, 1994 TAG: 9408030422
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY LAWRENCE H. KAUFMAN, JOURNAL OF COMMERCE
LENGTH: Medium: 85 lines
Norfolk Southern Corp. and Conrail Inc. are negotiating a merger that would form a 26,400-mile railroad blanketing the eastern half of the nation.
A merger would combine the predominantly north-south Norfolk Southern with the east-west Conrail, with lines stretching from Chicago to Boston and from the Canadian border to the Gulf of Mexico.
Executive conversations leading to creation of the super-regional railroad have been under way for as long as six months, The Journal of Commerce has confirmed.
Neither railroad would confirm or deny the existence of merger talks.
Robert Fort, a spokesman based at Norfolk Southern's headquarters in Norfolk, told The Virginian-Pilot and The Ledger-Star it is against company policy to discuss possible mergers involving the railroad.
``Conrail does not comment on such matters,'' said Robert Libkind, a Conrail spokesman.
The talks predate the recently announced combinations of Burlington Northern and Atchison, Topeka & Santa Fe, and of the Illinois Central and Kansas City Southern.
If the talks are successful, Norfolk Southern would acquire Conrail, which controls access to markets the Norfolk, Va.-based carrier considers essential to its growth.
The combined company would generate more than $7.1 billion in operating revenue, based on 1993 data. They accounted for 24.6 percent of industry revenue.
The two railroads handled more than 50 percent of coal carloads originated in the East last year.Conrail was first and Norfolk Southern second among Eastern carriers in intermodal traffic with a combined 24 percent of the industry traffic originated.
A merger would create a strong strategic alliance and is not viewed as a reaction to the earlier proposed mergers.
``Let's face it, everyone is talking to everyone else in the railroad industry right now,'' said a Norfolk Southern executive, speaking on condition of anonymity.
If Norfolk Southern is pursuing Conrail, it won't be the first time.
Ten years ago Norfolk Southern bid $1.2 billion bid for Conrail. The offer was scuttled by the House of Representatives after winning approval in the Senate.
The Senate passed the measure on a 54-39 vote on Feb. 4, 1986, but it never reached a full House vote, dying in committee. Because Conrail was created by Congress in 1976 from the remains of six bankrupt railroad companies, its sale had to be approved by Congress.
Acquiring Conrail would give Norfolk Southern better access to the Port of New York and New Jersey over its own lines. It must now use a cumbersome route from Buffalo, N.Y., over tracks of the Delaware & Hudson Railway unit of CP Rail System and the New York, Susquehanna & Western Railway.
Conrail has the preferred service routes between Chicago and New York.
A merged Conrail-Norfolk Southern would have access to all the Mississippi River gateways between the East and the West, and would extend as far west as Kansas City, Mo.
It would have connections with all of the Western rail systems.
Rather than threatening Western carriers, as a transcontinental merger might be viewed, Norfolk Southern and Conrail would give Western railroads additional routing options to avoid congested or less-efficient routes.
``Norfolk Southern is looking for ways to grow,'' said a senior executive at a Western railroad, speaking on condition of anonymity. ``I think that was behind their getting a toe in the water with RoadRailer (the Triple Crown joint venture with Conrail). There's a lot of synergy between those two railroads.''
Wall Street analysts who were willing to comment like the idea of putting Norfolk Southern and Conrail together.
``The character of management of these two companies is very similar,'' said James Higgins of Brown Brothers Harriman & Co. ``They're both driven by efficiencies. They're both strong, free-cash-flow generators, very intent on holding down capital.
``It would not surprise me if there were more railroad mergers announced before the end of the year,'' said Michael Lloyd of NatWest Securities Corp.
On Monday, Conrail canceled a rail inspection trip scheduled for analysts in September, saying it didn't want to put company business cars out on the railroad during a period of congestion.
``That suggests a tremendous amount of congestion,'' an analyst said Tuesday. ``Now, I wonder if that's the real reason.'' by CNB