THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Friday, January 24, 1997 TAG: 9701240556
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: 65 lines
Everyone thought it was too close to call: Wall Street, the shareholders, even the companies themselves. Norfolk Southern knew it had won but thought it had drawn only 53 percent of the vote.
Well, the Norfolk-based railroad drew a lot more than that when Conrail shareholders voted Jan. 17 to reject a proposed merger with CSX, now worth $9.7 billion.
Norfolk Southern blew CSX and Conrail out. Norfolk Southern has a competing $10.3 billion offer for Philadelphia-based Conrail.
The vote was 65 percent to 35 percent. In an election, that's called a landslide.
``The margin on the vote was amazing,'' said James M. Higgins, a transportation stock analyst at the New York investment house Donaldson Lufkin & Jenrette. ``What it says is Conrail shareholders are pretty dug in here.''
CSX and Conrail even had a head start, a guaranteed 20 percent of the vote - the Conrail shares Richmond-based CSX bought in November.
Conrail employees controlled another 13 percent of the stock. But not all of them agreed with their railroad's management andboard of directors that the CSX merger was best for Conrail. They voted about 29 percent of Conrail's employee stock option program against the CSX merger, according to Norfolk Southern.
Conrail played down the results, officially released Thursday.
``The outcome of the shareholder meeting was not unexpected given Norfolk Southern's last-minute enticement to purchase 9.9 percent of the Conrail shares,'' said Conrail Chairman David M. LeVan. ``Norfolk knew that our shareholders would vote to support the CSX transaction, and made this offer solely to undermine this vote.''
Before the vote, Norfolk Southern said it would buy 9.9 percent of Conrail's stock if shareholders voted against the merger.
The lopsided vote might have helped push CSX and Conrail to the bargaining table with Norfolk Southern. While the details haven't been settled, the railroads appear to have agreed to meet next week to discuss the competing offers for Conrail and how the remaining rail networks in the East would be organized once Conrail is absorbed.
Higgins is skeptical the talks are going to lead anywhere.
``It may take another vote, or another couple of votes, to convince Conrail's board that the shareholders are going to hang together and not let the CSX merger happen, and that they should open up the playing field for Norfolk Southern,'' Higgins said.
Indeed, Conrail plans another vote. LeVan said the latest vote had no implications for the CSX merger.
``The Conrail board of directors remains fully committed to the CSX-Conrail merger and will not approve a transaction with Norfolk Southern,'' LeVan said.
Technically, Conrail shareholders were voting to opt out of a Pennsylvania law that prohibits CSX from buying more than 20 percent of Conrail. It was the first of several votes needed to complete the merger. But if CSX had won, it could have bought up to 40 percent of Conrail, essentially locking up future votes.
The vote elated Norfolk Southern.
``The size of the vote and the support of Conrail's employees, which was especially welcome, clearly refute the claim that the opt-out was defeated only by institutional and other large shareholders,'' said Norfolk Southern Chairman David R. Goode. ``Norfolk Southern is gratified, and we sincerely hope Conrail's board will recognize and act in accordance with the wishes of its shareholders.''
KEYWORDS: CONRAIL CSX NORFOLK SOUTHERN
MERGER