THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, October 31, 1996 TAG: 9610310349
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: 77 lines
Norfolk Southern Corp. is taking its fight to buy Conrail Inc. to the court of public opinion.
The Norfolk-based railroad appealed to its public, the shippers that use railroads, in a letter mailed Tuesday, saying it would improve competition east of the Mississippi River if it buys Conrail, which dominates the Northeast.
The letter also was released to the news media on Wednesday as Norfolk Southern Chairman David R. Goode met with the editorial board of Conrail's hometown newspaper, the Philadelphia Inquirer.
Norfolk Southern is locked in a battle with its Richmond-based rival CSX Corp. to buy Conrail and its attractive northeastern connections. CSX and Conrail agreed to a friendly merger in mid-October.
Fearing for its competitive future, Norfolk Southern topped CSX's offer last week by $1 billion. Both Norfolk Southern and CSX operate rail networks linking the Southeast to the Midwest, but CSX is somewhat larger, extending farther to the northeast than Norfolk Southern.
Norfolk Southern is apparently opening as many battle fronts as possible in its fight to win Conrail.
Norfolk Southern has already made a friendly overture directly to Conrail's board, offering even to ``consider'' moving its headquarters to Philadelphia if a merger can be negotiated. But it also sued Conrail in federal court to try to force Conrail to consider the bigger offer.
With the letter to shippers, Norfolk Southern hopes to curry favor with shippers for its proposed merger with Conrail by appealing to their desire for competition. Shippers' opinions will play some role in the eventual review of any railroad merger by the federal Surface Transportation Board.
``A region is best served by having two railroads of comparable size and scope competing for the business of customers,'' Norfolk Southern said in the letter.
``Norfolk Southern, in acquiring Conrail, would be receptive to competitive enhancements going far beyond anything envisaged by CSX's stonewall advocacy of the status quo,'' the letter said.
CSX lashed back Wednesday, calling the Norfolk Southern letter an ``act of desperation.'' Norfolk Southern is pursuing a ``loser's strategy, solely intent on gaining or forcing competitive concessions'' rom CSX and Conrail, CSX said in a statement.
CSX said it reached out to Norfolk Southern after announcing its merger with Conrail to negotiate competitive access. ``They ignored those overtures,'' CSX said.
``Why would you write a letter to rail shippers?'' asked Mark Aron, a CSX executive vice president. ``It reads as a party who has lost their bid and is building their case before the Surface Transportation Board.''
Norfolk Southern Spokesman Robert Fort said CSX's response failed to even address the question of competition.
Shippers meanwhile are taking their time to review the proposed mergers and form opinions. Members of the powerful National Industrial Transportation League, which represents 1,200 major shippers, are meeting in mid-November to address the question.
In its letter, Norfolk Southern said balanced, effective rail competition requires: railroads of comparable size and scope; service to large markets by more than one railroad; direct ownership of major routes to ensure safety, efficiency and service; and effective terminal access.
Norfolk Southern cited the New York market specifically as one that needs more competitive service. Conrail has been the only major railroad serving the market for two decades.
``In the context of New York, this means we will be willing to sell a line and will not play the game of pretending to wish our competitor success over extended trackage rights on lines owned and controlled by Norfolk Southern,'' the rail company said.
CSX called the letter a ``thinly disguised attempt to re-write more than 20 years of regulatory history.''
CSX has not discussed Conrail's New York access. It has said CSX and Conrail would open to competition markets that both serve now.
However, based on their interpretation of a recent federal ruling on another rail merger, the two railroads appear unwilling to address markets, including New York and Boston, where Conrail is the only choice for rail shippers. MEMO: The Associated Press contributed to this report. by CNB