THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Thursday, January 23, 1997 TAG: 9701230365
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: 91 lines
It looks like a meeting between Norfolk Southern and merger partners CSX and Conrail is on. If all goes well, the four-month-long war for control of Conrail could be resolved.
Responding Wednesday to an invitation from Norfolk Southern Chairman David R. Goode and prodding from federal regulators, CSX Chairman John W. Snow and Conrail Chairman David R. LeVan said in a letter that they are willing to meet and talk.
``People are getting the impression that there could be a private meeting of the minds that could lead to an accord,'' said Scott Flower, a transportation analyst at the New York brokerage PaineWebber. ``It won't be easy. . . it's very early in the dance.''
Any settlement will likely give the loser in the fight for ownership of Conrail significant access to Northeastern markets where Conrail has enjoyed a monopoly for more than 20 years. Norfolk Southern and CSX could end up with competitively balanced Eastern rail networks.
The prospect of talks between the competing railroads sent their stock prices up in trading Wednesday. Also, Conrail reported record results for the fourth quarter of 1996 despite costs and distractions associated with the takeover battle.
In the letter to Goode, Snow and LeVan wrote: ``Our objective, which we are sure you share, is to assure that the public's interest in strong, viable competition is met. We want no winner or loser, other than to be sure the public is the winner.''
Snow and LeVan suggested meeting as soon as possible and said they would be in contact to set up a meeting.
``We appreciate their prompt response and we regard it as a very positive development,'' said Robert Fort, a Norfolk Southern spokesman. ``We look forward to making plans for a meeting and moving ahead toward a competitive resolution.''
Richmond-based CSX Corp. and Conrail announced a merger now worth $9.7 billion in October that would create by far the biggest railroad in the East. Fearful of being cut out of lucrative Northeastern rail markets, Norfolk Southern launched a takeover bid for Philadelphia-based Conrail that is now worth $10.3 billion.
Conrail shareholders sided with Norfolk Southern in a vote Friday, but CSX and Conrail say they remain committed to their merger.
Linda Morgan, chairman of the Surface Transportation Board, an independent federal agency that must approve any rail merger, urged the railroads to hammer out an agreement that assures competition in East. She suggested the board might have to impose some settlement.
LeVan and Snow offered a way to avoid a possible sticking point. Both sides had been insisting that any meeting be prefaced on their offer for Conrail proceeding.
``We recognize that you have a different view of our merger; nevertheless, we should, as Chairman Morgan urges, meet and talk,'' Snow and LeVan wrote. ``This can and should be done without any preconditions that would limit our discussions or otherwise prejudice our respective positions.
``Let us be very clear; no one should interpret from our meeting that either party has changed its position.''
Expectations of a settlement pushed stocks in all three railroads up in trading on the New York Stock Exchange.
CSX jumped 1 5/8 to $49 1/8 a share, pushing the value of its cash-and-stock offer for Conrail up $200 million to $9.7 billion, the closest to Norfolk Southern's cash bid it's ever been. Reflecting CSX's gain, Conrail rose 3 1/2 to $107 1/2 a share. Norfolk Southern closed at $88 1/8 a share, up 1.
``The market could be overreacting,'' the stock analyst Flower cautioned, suggesting a settlement is far from certain.
Flower said that CSX's stock, and subsequently its offer for Conrail, wouldn't have risen nearly so high without the prospect of talks.
``If negotiations were to breakdown, I expect that CSX will settle out lower, but not as low as before,'' he said. ``We appear to be moving out of the spiraling, vitriolic process we saw earlier.''
Meanwhile, Conrail reported Wednesday that it made $147 million, or $1.70 a share, in the quarter ended Dec. 31. The record earnings came despite $16 million of expenses related to the CSX merger and the distractions of the takeover fight.
It had lost $30 million, or 43 cents a share, in 1995's fourth quarter, as it took a $285 million restructuring charge.
Fourth-quarter revenues slipped less than 1 percent to $941 million.
``This is the third consecutive quarter that we produced record results in net income, earnings per share and operating ratio,'' LeVan said in a statement.
For 1996, Conrail made $342 million, or $3.89 per share, compared to $264 million, or $2.94 per share, in 1995. Revenues rose less than 1 percent to $3.71 billion.
Conrail took a $135 million charge in 1996's second quarter to cover expenses for an early retirement program.
KEYWORDS: CSX CONRAIL NORFOLK SOUTHERN
MERGER