DATE: Wednesday, September 10, 1997         TAG: 9709100509

SECTION: BUSINESS                PAGE: D2   EDITION: FINAL 

SOURCE: BY JAN CIENSKI, ASSOCIATED PRESS 

DATELINE: RICHMOND                          LENGTH:   63 lines

CSX SAYS $2.5 BILLION VERDICT WON'T AFFECT CONRAIL TAKEOVER

A $2.5 billion railway accident verdict against CSX won't affect the rail company's plans to take over part of Conrail but could hurt its ability to profit from the takeover, analysts said Tuesday.

A New Orleans jury found Monday that CSX Transportation and four other companies, including Norfolk Southern, were responsible for a 1987 tank car explosion that forced an evacuation affecting about 1,000 people. The total judgment was $3.4 billion.

CSXT, a Jacksonville, Fla.-based subsidiary of Richmond-based CSX Corp., is appealing the verdict, said A.R. ``Pete'' Carpenter, CSXT's president and chief executive officer.

Norfolk Southern Corp. will also appeal its share of the verdict, a spokesman said. Jurors levied a $175 million verdict against the Alabama Great Southern Railway, the formal name of Norfolk Southern's mainline from Birmingham, Ala., to New Orleans. Norfolk Southern handled the ill-fated chemical car at some point in its journey to the CSX railyard in New Orleans.

Federal rail safety investigators had determined the railroads had no fault in the incident. ``The verdict is outrageous and unjustifiable,'' said Norfolk Southern spokesman Robert Fort. ``Unless the judge reverses it we will appeal the ruling.''

CSX spokesman Tom Hoppin said the verdict would not change the $4.3 billion deal to buy 42 percent of Philadelphia-based Conrail. Norfolk Southern is buying the rest of the Northeastern railroad in a deal that needs federal Surface Transportation Board approval.

While the judgment may not affect the Conrail takeover, it could have an impact after the merger, analysts said.

``If they have a severe judgment against them, it could cripple their ability to raise money to make the merger work,'' said Crew Heimer of R.L. Banks & Associates, a Washington rail consulting firm.

Anthony Hatch of NatWest Securities Corp., a New York brokerage firm, said the odds were slim that CSX would have to pay the full damages. But if the verdict is upheld, it could be a boon for Norfolk Southern.

``It would give (CSX) a significant competitive disadvantage against Norfolk Southern for quite some time,'' he said.

If the verdict stands, it would force CSX to pay out almost a quarter of its revenues. In 1996, the company had revenues of $10.5 billion, and profit of $855 million.

The verdict could do more than affect CSX's bottom line. Heimer warned railways could be forced to charge more for hauling hazardous materials to cover the increased risk of being hit with a huge penalty.

``The result is that we'd see more of this stuff on the highway which is the worst thing for this country,'' he said, adding that it is safer to ship dangerous goods by rail than by road.

The suit was filed shortly after the tank car caught fire in the middle of the night on Sept. 9, 1987. Butadiene, a petroleum byproduct, leaked through a faulty gasket and ignited, sending thick black smoke into the air while the wagon was parked in a switching yard.

Some residents said they suffered breathing difficulties, rashes and other health problems as a result of the accident. But defense attorneys said the 8,000 members of the class-action lawsuit exaggerated their problems and sought excessive and unjustified damages.

Trading in CSX stock was halted Monday on the New York Stock Exchange before the verdict was announced. In Tuesday's trading, CSX stock fell 0.7 percent to $58. MEMO: Staff writer Christopher Dinsmore contributed to this story.

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