THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, February 28, 1996 TAG: 9602280410
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Medium: 71 lines
Norfolk Southern Corp. has talked about buying the Florida East Coast Railway with the tiny railroad's owner, a Florida East Coast executive said.
Florida East Coast Industries Inc. has had ``very preliminary discussions'' with Norfolk Southern, C.F. Zellers Jr., president and chief operating officer of the Jacksonville, Fla.-based holding company told The Wall Street Journal.
``We have had a lot of discussions with Florida East Coast about strategic alliances,'' Norfolk Southern spokesman Bob Fort said Tuesday.
Fort wouldn't characterize the discussions as merger and acquisition talks and he declined to comment on whether the Norfolk-based railroad may be interested in buying Florida East Coast Railway.
Zellers couldn't be reached to elaborate on his comment in Tuesday's Wall Street Journal.
Norfolk Southern is widely regarded by railroad analysts as the most likely buyer for Florida East Coast Railway, which was put on the block Monday.
The two railroads already cooperate in the movement of automobiles and intermodal containers.
``There is no reason Norfolk Southern shouldn't buy this railroad,'' said James S. Schmitt of Westcountry Financial, a Somis, Calif.-based institutional investment research boutique. ``It makes all kinds of sense for Norfolk Southern.''
Norfolk Southern's lines extend to just south of Jacksonville. Florida East Coast Railway would extend its reach south to Miami along the Sunshine State's east coast through such markets as West Palm Beach, Fort Lauderdale and Miami. No other rail line serves part of that east coast including Daytona Beach and Cape Canaveral.
Schmitt's biggest worry was that Norfolk Southern may be able to buy the railroad on the cheap because there aren't any other logical buyers out there.
CSX Transportation Inc. might be interested, but would face severe antitrust hurdles as the only other railroad serving south Florida. Another possible buyer could be RailTex Inc., a growing San Antonio, Texas-based short-line operator. RailTex's short lines feed larger railroads in much the same way Florida East Coast serves Norfolk Southern.
``The Norfolk people know full well what a good railroad this can be for them, especially since there aren't likely to be many other bidders,'' Schmitt said.
Norfolk Southern could save up to $25 million a year by eliminating Florida East Coast Railway's administrative and other overhead through a merger, Schmitt said. Norfolk Southern also may not need Florida East Coast's equipment or personnel to operate, he said.
``They can do a lot more with it that Florida East Coast can,'' Schmitt added.
Norfolk Southern, the nation's fourth-largest railroad with annual revenues of more than $4 billion, would be able to market Florida service throughout its 14,500 mile network in 20 states and the Canadian province of Ontario.
Florida East Coast Railway generates about $150 million in annual revenues with its 442 miles of track.
Any sale of the railroad is contingent on Florida East Coast Industries first selling its real estate development unit, Gran Central Corp. It is talking about a sale of the subsidiary to St. Joe Paper Co., also of Jacksonville.
Florida East Coast Industries stock shot up by $8 1/8 to $83 1/8 a share Tuesday in New York Stock Exchange trading.
Norfolk Southern stock remained steady at $83 1/4 a share. ILLUSTRATION: Map
by CNB