THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Tuesday, September 27, 1994 TAG: 9409270289
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Medium: 81 lines
Norfolk Southern Corp. won't buy Conrail Inc. anytime soon.
Philadelphia-based Conrail stated its intentions to remain independent - at least for the foreseeable future - in a statement Monday.
``A Norfolk Southern-Conrail merger seems to be kind of dead,'' said one railroad analyst who did not want to be named.
Rumors surfaced in early August that Norfolk-based Norfolk Southern was discussing a merger with Conrail. Opposition from other railroads - Richmond-based CSX Corp. in particular - plus regulatory and legislative hurdles, and the possible price, may have derailed the talks before an agreement was even reached, analysts said.
In Monday's statement Conrail said its current strategy ``provides a sound foundation upon which to base Conrail's near-term future as an independent entity.''
The railroad's board reached that conclusion in meetings Thursday and Friday in which they reviewed Conrail's ``strategic business direction,'' the statement said.
A Conrail spokesman said the near term could fairly be defined as ``as far as you can confidently predict.'' He declined to elaborate.
Norfolk Southern, as a matter of policy, does not comment on transactions or discussions that may or may not be occurring, a spokesman said.
This summer, two big railroad merger deals were announced. Burlington Northern Inc. and Santa Fe Pacific Corp. in late June agreed to a $2.77 billion merger, which needs government approval. About
three weeks later, Illinois Central Corp. reach an agreement in principle to buy Kansas City Southern Industries Inc.'s railroad for $1.63 billion in stock and assumed debt.
The mergers are seen as part of the industry's drive to provide better service and to be more competitive with one another and other forms of freight transportation.
A Norfolk Southern-Conrail match seemed to make great sense, analysts had said. The railroads already cooperate on several ventures to provide better service, including one announced last week to provide faster and safer transportation of automobiles from Midwestern plants to distribution points in the Northeast.
One of the biggest hurdles facing a merger was the potential opposition from other railroads. Conrail enjoys a virtual monopoly on the major corridors in the Northeast.
Anybody who buys Conrail, which had been owned by the federal government until the late 1980s, would gain unparalleled access to New York and the rest of the Northeast and a significant advantage over any competitors.
Norfolk Southern and CSX compete throughout the Southeast and Midwest. If CSX did not outright oppose a Norfolk Southern-Conrail merger, it would demand, at least, competitive access to Northeastern markets, analysts said.
Doug Rockel, transportation analyst at Merrill Lynch in New York, has doubted that the two rail giants would merge because of the potential regulatory hurdles from the Interstate Commerce Commission.
``It's almost too good to be true,'' he said of a combined system. To gain ICC approval, ``you don't know what you have to give away. That's why you don't want to pay a big premium.''
Besides hurdles at the ICC level, a merger could have faced strong opposition from some members of Congress, another analyst said.
Congress intervened the last time Norfolk Southern tried to buy Conrail. Objections of certain members of Congress, labor unions and shippers scuttled that deal in 1986.
Another hurdle to a deal may have been price, one analyst said. Conrail stock traded within the last year at an all-time high of $69 per share, and any deal would have to be near that price, the analyst said.
``Norfolk Southern would have to pay a fairly hefty multiple,'' the analyst added.
Neither company's stock reacted much to the news in trading on Monday. Conrail stock slipped 1/8 to $49 1/8 per share. Norfolk Southern shares rose 3/8 to $60 1/2 each. ILLUSTRATION: Graphic
WHAT KILLED IT?
[For complete graphic, please see microfilm]
by CNB