THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Tuesday, August 27, 1996 TAG: 9608270249
SECTION: BUSINESS PAGE: D6 EDITION: FINAL
SOURCE: STAFF AND WIRE REPORT
LENGTH: 49 lines
The state of North Carolina is considering buying the 25 percent of the North Carolina Railroad Co. it doesn't already own to make leasing it to Norfolk Southern Corp. easier.
The Raleigh-based railroad announced Monday that the state has retained NationsBank as its financial adviser to evaluate a buyout of the railroad's private shareholders.
Norfolk Southern has leased access to the 317-mile railroad connecting Charlotte in the west to Morehead City on the coast since 1895 for $600,000 a year. The generous lease expired Jan. 1, 1995.
With the support of the state, Norfolk Southern and the railroad's board had agreed late last year to a new 30-year lease with an annual rent of $8 million. The rent was retroactive to the expiration of the lease.
But that lease was barred in July by a federal judge in Raleigh. The judge agreed with a suit by one of the North Carolina Railroad's private shareholders that claimed a December 1995 vote on the new lease didn't include the required quorum of private shareholders.
Minority shareholders opposing the new lease have said that the $8 million annual rent provides only a 1.5 percent return on the railroad's $512 million of assets.
It's Norfolk Southern's opinion that the lease is still valid, said railroad spokesman Robert Fort.
``We're waiting to see what move they're going to make to get the approval of their shareholders,'' Fort said.
A buyout by the state would certainly lead to approval.
The disagreement between the state and the railroad's private shareholders is about economic development vs. return on assets. The state wants to offer Norfolk Southern an inexpensive lease to encourage development along the rail line. Private shareholders want to make something off their stock, which has languished since the new lease was agreed to.
The possibility of a buyout has pushed the stock price up from a low of nearly $23 a share in late July to $29 1/4, its Monday close.
The North Carolina Railroad's board appointed a special committee of five private shareholders of the railroad to negotiate with the state. The committee will also consider any other offers.
The state has not made an offer yet, said John M. Alexander Jr., secretary and director of the North Carolina Railroad.
``There can be no assurances that an acceptable buyout or other transaction will be consummated,'' Alexander said. MEMO: Bloomberg Business News contributed to this report. by CNB