THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Tuesday, November 5, 1996 TAG: 9611050308
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: 82 lines
On the same day Norfolk Southern Corp. said it has amassed a $15 billion war chest in its battle to buy Conrail Inc., it acknowledged that it is talking the takeover fight over with CSX Corp., the railroad it's bidding against.
The outcome of such talks is uncertain. Neither side could agree Monday about what the negotiations that began over the weekend are about or even who started them.
Richmond-based CSX said the discussions concerned the possible sale of some tracks or access rights to Norfolk Southern after a CSX-Conrail merger. On the other side, Norfolk Southern said the talks were about what rail competition in the East would look like after Conrail is sold to either railroad.
Meanwhile, Conrail's board of directors voted to delay implementing a ``poison pill'' defense that would have made Norfolk Southern's hostile takeover of the company prohibitively expensive. Philadelphia-based Conrail prefers to sell to CSX.
Conrail's move headed off a hearing Monday in Philadelphia's U.S. District Court on Norfolk Southern's request for an order to block the poison pill, which would have taken effect on Wednesday.
The next hearing on Norfolk Southern's suit to force Conrail to consider its $9.1 billion bid is Nov. 14.
Norfolk Southern's bid, announced Oct. 23, tops the value of CSX's proposed friendly merger by more than $1 billion. Norfolk Southern has said it would ``consider'' moving its headquarters to Philadelphia if Conrail were to negotiate.
Under the provisions of its poison pill, Conrail could have distributed rights to its shareholders on Wednesday to buy extra Conrail stock at half price. The distribution would have made buying Conrail too expensive for Norfolk Southern.
A Conrail spokesman declined to say why its board delayed the poison pill.
Norfolk Southern, however, now has access to more than enough money to buy Conrail with its current bid. It announced it has received signed commitment letters from banks for over $15 billion to finance its offer.
Both Norfolk Southern and CSX are vying to become the largest railroad east of the Mississippi River and the third-largest in the nation by buying or merging with Conrail.
Conrail would give either competitor valuable connections to major Northeastern markets such as New York and Boston. Conrail's near-monopoly on rail shipping to and from such major markets is a bone of contention between CSX and Norfolk Southern.
It's also the subject of disagreement as to what exactly the two railroads are talking about.
``This may be one way out of the impasse,'' said Charles Vincent, a rail stock analyst for PNC Financial Corp. in Philadelphia. ``If they can somehow break up Conrail or one party can give significant access to the other through a sale or trackage rights, this fight might be resolved.''
Any agreement Norfolk Southern and CSX can negotiate on Conrail would be regarded as a positive development because it would likely resolve antitrust concerns and regulatory roadblocks to a merger. It would also mean that both railroads were satisfied with their competitive positions.
But the only thing the two sides agreed to on Monday is to talk.
CSX issued a statement that said it was discussing ``a possible sale by the post-merger CSX-Conrail of certain material assets'' to Norfolk Southern. CSX's statement said Norfolk Southern initiated the negotiations.
Norfolk Southern shot back that it still intends to buy Conrail.
``Our willingness to talk to CSX at its suggestion is consistent with my previously announced position that Conrail cannot be acquired by either CSX or (Norfolk Southern) without a plan to maintain a balanced competitive structure for Eastern railroad service,'' said David R. Goode, Norfolk Southern's chairman and chief executive, in a statement.
CSX says it is only willing to discuss maintaining competition in the markets where competition would be eliminated by its merger with Conrail, like Philadelphia. However, CSX does not seem willing to discuss opening Conrail's monopoly markets to competition.
``We are committed to maintaining competitive access,'' said CSX spokesman Vance Richardson.
Any agreement between CSX and Norfolk Southern would have to be approved by Conrail.
Conrail's stock traded as low as $87 a share on Monday on fear that Norfolk Southern would be appeased by CSX and withdraw its higher offer, but the stock ended the day down just 1 5/8 at 93 5/8 per share.
Also on the New York Stock Exchange, CSX's stock surged 1 7/8 to 44 7/8 per share and Norfolk Southern's rose 1 3/8 to 90 3/4 per share.
KEYWORDS: CONRAIL CSX NORFOLK SOUTHERN by CNB