THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, November 3, 1996 TAG: 9611020573
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: 81 lines
The ongoing battle between CSX Corp. and Norfolk Southern Corp. for Conrail Inc. almost didn't happen.
In 1994 Norfolk Southern and Conrail nearly agreed to a merger.
Details of that near-deal were disclosed in the suit Norfolk Southern filed Oct. 23 against Philadelphia-based Conrail and Richmond-based CSX in an effort to break up their friendly merger.
Norfolk Southern, in a move to protect its competitive franchise, launched a hostile bid for Conrail on Oct. 23, topping CSX's offer by more than $1 billion.
The 1994 talks are relevant, Norfolk Southern said in the suit, because it shows the Norfolk-based railroad's interest in Conrail through its past attempts to buy it.
Based on recent stock prices, Norfolk Southern's 1994 offer would now be worth about $101 a share to Conrail shareholders, much higher than CSX's offer of cash and stock now worth about $85 a share to Conrail stockholders.
Norfolk Southern's renewed offer is for $100 cash a share.
Norfolk Southern Chairman David R. Goode had called his counterpart at Conrail, David LeVan, in September and early October, reiterating Norfolk Southern's interest in presenting a merger offer to Conrail's board of directors. But LeVan turned him away, just as Conrail had done two years earlier.
``There can be no question that LeVan, if not Conrail's board, was well aware (Norfolk Southern) would likely be willing and able to offer more - to Conrail's shareholders, rather than management, that is - than CSX could offer for an acquisition of Conrail,'' Norfolk Southern's suit said.
Norfolk Southern is trying to convince the federal court in Philadelphia that Conrail's board breached its duty to Conrail shareholders by not talking to Norfolk Southern about a possible offer.
A preliminary hearing on the suit is scheduled for Nov. 12.
The day Norfolk Southern announced its hostile offer, Conrail issued a statement saying its board had already reviewed the relative merits of mergers with both Norfolk Southern and CSX, and it chose CSX.
Norfolk Southern has been trying to buy Conrail since the federal government put it up for sale in the early 1980s.
Congress created Conrail from six bankrupt northeastern railroads in 1973 to avert a transportation crisis. After deregulation breathed life back in to the moribund rail industry, the Reagan administration decided to sell Conrail, which had been a drain on federal coffers.
Then Transportation Secretary Elizabeth Dole negotiated a sale of Conrail to Norfolk Southern, but Congress derailed the deal in 1986 and, a year later, Conrail was sold to the public in a stock offering.
Before 1994, Norfolk Southern and Conrail had discussed ``from time to time'' the possibility of a merger, according to the lawsuit.
In March 1994 Conrail's then-chairman James A. Hagen approached Goode to initiate talks about a possible business combination, the suit said.
While Norfolk Southern pursued a ``merger of equals'' in the ensuing negotiations, offering to exchange one share of Norfolk Southern stock for each Conrail share, Conrail management sought a premium to reflect Norfolk Southern's acquisition of control over Conrail.
On September 23, 1994, Norfolk Southern increased its offer to 1.1 share of its stock for each Conrail share and ``left the door open to an even greater ratio,'' according to the suit.
But then Hagen told Goode that they could not reach an agreement because the Conrail board had decided to keep Conrail independent.
About the same time the Conrail board elected LeVan president and chief operating officer, effectively annointing him as Hagen's successor.
Goode has spoken with LeVan periodically since then and repeatedly expressed Norfolk Southern's ``strong interest in negotiating an acquisition of Conrail,'' the suit said.
While LeVan expressed Conrail's desire to remain independent, the suit said Goode ``was led to believe that if and when the Conrail board determined to pursue the sale of the company, it would do so through a process in which (Norfolk Southern) would have an opportunity to bid.''
In September 1996, Norfolk Southern's board determined that the railroad should press for an acquisition of Conrail. Goode contacted LeVan twice, but was rebuffed.
Then, on Oct. 15, CSX and Conrail announced their merger, much to Norfolk Southern ``surprise and dismay,'' the suit said. ILLUSTRATION: Color photo
KEYWORDS: MERGER CSX CORP. NORFOLK SOUTHERN CORP.
CONRAIL INC. by CNB